If your income is less than your expenditure even if you don’t pay anything to your unsecured debts, then you have an emergency because you do not have enough to live on.
In this situation you need to ignore your debts for the moment and concentrate on improving your overall finances. Until you are at least ‘breaking even’ you can’t decide what debt solutions might work for you, because unless something changes in your budget, you are going to need to borrow more every month. Your debt hole is getting deeper and you can’t work out how to get out of it unless you put down the spade and stop digging!
Even if your debts are so bad that you are going to have to go bankrupt, you still have to tackle your budget first, because going bankrupt won’t solve the problem that you are spending more each month than you have coming in.
So you need to look at some combination of:
- Increasing your income (are you claiming all the benefits you are entitled to?)
- Decreasing your expenditure and
- Selling any assets.
If you have applied for a DWP welfare benefit (ie not Housing Benefit or Council Tax Support, these are operated by your local council) which is not yet being paid, you can request a Short Term Benefit Advance (STBA). These are not considered a benefit in their own right so there are no applications forms for them(!) nor is there any advertising about them. DWP offices have been know to tell people to apply to their local council for help, but they must take your request for a STBA and forward it and it will usually be decided within hours rather than weeks. See these CPAG pages for more information about how to get a STBA.
If your situation is very temporary – perhaps you have just started a job but don’t get paid until the end of the month – look at Emergency Budgeting ideas. But they won’t work for very long.
If you have a problem that is going to last more than a few weeks then you may have to look at some unappealing options. Ask yourself if most people would think the things you are spending money on are really essential. Check out the ideas on Reduce your expenditure. You could ask for suggestions on the online forums mentioned in Where to get advice.
Try to avoid Payday Loans – they might give you some relief this week and next, but when they have to be repaid your situation will be even worse, so better to face up to it now.
If the main cause of your situation is the cost of your mortgage and secured loans, then look at the Housing Flowchart for ideas and read about Selling the house - this is emotionally a hard choice to make but it may be the right one.
If your income has decreased because of health problems and these are likely to continue, then you may be in a situation where you need good advice on benefits, move to somewhere cheaper and also resolve your debts. Go to your local Citizen’s Advice Bureau for this sort of complex situation.