Debt and recession: managing your debts in a downturn

12 December2011

As experts argue about whether or not the UK's heading back into recession, Standard Chartered Bank analysts say that the economy has already started shrinking - and that we can expect it to contract by a full 1.3% next year.

A lot of people take this kind of prediction with a pinch of salt, but the Bank came in at the top of 354 companies for the accuracy of its economic forecasts over the last two years.

What about your financial health?

News like this is obviously worrying, but what usually matters more to us is how we're doing as individuals. After all, there's not much we can do about the health of the country's economy - but there are plenty of ways we could try to improve our own financial health.

That's something that's always important, but at a time like this, when it looks like we're 'in for a tough time' next year, it's more vital than ever.

After all, recessions tend to mean lower job security and lower pay rises (if any) - and with inflation running at around 5%, a lot of us will struggle to keep up.

Are you managing your debts?

Are you carrying debts? If so, are you staying on top of them? The actual amount of debt you're carrying isn't really the main issue - what counts is whether you can afford your monthly payments and can see that you'll be able to get out of debt in a reasonable time.

If you can't make your payments, you really need to do something about that. You could contact your lenders and ask them to accept lower payments that you can afford. If you prefer, you can ask experts to do that for you.

You might find that a debt management plan offers you a realistic way out of debt that doesn't stretch your finances too far on a monthly basis.

How could debt management help?

A debt management plan could help in the short term by lowering your payments, freezing interest and basically simplifying your monthly finances. In the long term, it could see your debts cleared as quickly as you can realistically afford.

It works like this:

Talk to us. Tell us about your finances. If it's clear that you can't afford the payments you originally agreed to make towards your debts, debt management might be an option - if you can still commit to making a reasonable (but lower) payment every month.

We'll talk to your lenders. If you decide to enter a debt management plan, we'll contact your unsecured lenders, explaining that you can't afford your payments, but you're offering to pay as much as you can afford per month until your debts are paid off in full.

We'll help all the way. While you're on a debt management plan with us, we'll handle letters and phone calls from your lenders. We'll distribute your payments among your lenders every month. And we'll be there to provide advice and assistance if you need it.

Just be aware that making those smaller payments could cost you more in interest in the long run if your lenders don't agree to freeze it. It can also damage your credit rating, since you're not sticking to the agreements you signed up to when you originally borrowed the money.

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Tags: debt, debt management, debt management plan, recession, economy, money, Standard Chartered Bank, shrinking economy

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