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7 Important Things about Debt Personal Finance Experts Will Not Tell You

Do you know what surprised me most when I started paying off my rather large amount of debt?

Most of what I read - websites, blogs and books - abounded in truisms like 'don't spend more than you earn', minute technicalities of saving and/or righteous judgement. Some of that was useful, some of it was not worth more than a second's look. What I read, offered information but not the wisdom and understanding that I needed to pay off my debt.

The wisdom necessary to pay off our debt, and stay debt free, I had to figure out. Here I'd share 7 important things about debt that personal finance experts won't tell you.

Before we move on, let me tell you a bit about me.

I'm Maria; I blog on personal finance and I'm professor at two universities. I have written two PhD theses and have initiated in research many generations of students. Smart, uh?

I also had £100,000 of consumer debt at the beginning of 2010. You see, you can get yourself in debt irrespective of education, background, occupation, gender…Shall, I continue?

The key point is that anyone can get themselves in debt. As with many things in life, getting in debt is not what matters; what you do next is what counts.

What did I do, you may ask?

I got fed up and I got determined. I learned a lot of what there is to know about money: about how to make it, keep it, spend it and invest it. This all paid off. Three years later, at the beginning of 2013, we had paid off all our debt. Now we have serious savings and investments.

The 7 important things about debt I share here, didn't come from bookish learning: they were suffered and tested through experience.

#1. Having debt is like stealing from your future self

Some people tell me that they have debt but they are not bothered about paying it off. Some people were also very negative when the news that I paid off £100,000 worth of consumer debt in three years; some muttered that I should have gone bankrupt.

You know what?

These people must realise that staying in debt is like stealing from your future self. Why would you want to do that?

#2. Paying off your debt is very empowering

After you've just realised how much debt you have, the way to debt freedom looks like a climb to the summit of Everest: long, cold, hard and very daunting.

Don't feel disheartened. Just start paying your debt off. Very soon you'll see results and this is so empowering.

When we paid off over £70,000 in two years, I started feeling like Rambo: nothing seemed impossible and sky was the limit.

And you know what? I hustled like a pro! You can feel my elation in my announcement that we are debt free.

#3. Not everyone can pay off their debt

Personal finance experts, particularly bloggers, will try to motivate you by telling you that everyone can pay off their debt.

This is not true. To decide whether you can pay off your debt, use The Money Principle 'debt repayment coefficient' or DRC. This is:

DRC = (Annual Pay After Tax - Annual Survival Budget)/total debt

If your DRC is larger than 0.18 you can't pay off your debt and need to seek professional help. (I'm assuming you know or can work out your Annual Survival Budget but let me give you a hint: this is the spending that you need for your survival and not much less. Still, your survival budget can be surprisingly large.)

I'm not a spoil sport and I'm not here to burst your bubble. I'll motivate you by saying that if you find your DRC is high, you can start learning how to make more money. It's all splendid fun.

#4. Most people are in debt because they don't earn enough

This is certainly something you won't hear often from personal finance bloggers. They'd rather tell you how to save more and be frugal to the extreme.

The problem with frugality is that it can be very dangerous when extreme. Yes, you can cut your food budget but this often means inadequate nutrition and limited capacity to do much else than make designs on how to be more frugal. Yes, our minds are limited as well.

Yet, when you look at statistics the median gross household income in the UK (2 adults) is approximately £22,000 (this is before tax) and the basic cost of living per person is approximately £15,000 per person. Can you see the problem? It is not surprising that 60% of the people in the UK who live below the poverty line work, is it?

Make sure that you earn enough before you start making plans to pay off your debt.

#5. Habits are the key to debt

When talking about debt we usually talk about money. So, people tell you that you are in debt because you spend more than you earn.

This is technically correct but rather misguided. You are in debt because you:

  • Don't balance your current account regularly;
  • Don't control your spending;
  • Don't spend mindfully;
  • Buy quantity rather than quality; etc.

To put it bluntly, you are in debt because of your habits. To get out of debt, and to stay debt free, you need to change your habits.

#6. To pay off your debt you need focus not money

"Ah, Maria, but of course I need money to pay off my debt."

Money is secondary, friends. You can spend your money on any number of things. To spend it on paying off your debt you should develop the focus of a hunter. You must stalk your debt, chase it and hit it until it is all gone. All of it!

You wish to know what I mean?

When we were paying off our debt, the smallest payment we made was slightly over £4. This, my friends, is the focus of hunting tiger.

#7. Having debt makes you very vulnerable

Most people would rather judge when they talk about debt. I've always been practical (and I never allowed anyone to judge me).

I wasn't ashamed of having debt - after all, this is the norm and our capitalist societies thrive on debt. No, what really made me mad, so mad that I didn't stop until the last penny was paid off, was that having debt made me very vulnerable.

The bank could have taken our house.

My employer had a big trump card over me: I needed the job.

My choices were severely limited.

If I were to encourage one emotion when dealing with debt it would be the craving for independence and security. Because they feel great and you cannot have them when you have debt.

Finally…

Becoming debt free is the best thing I ever did apart from giving birth to my son. It wasn't easy. It took determination, ingenuity, extremely hard work, learning new skills and repeatedly leaving the safety of comfort zone.

I don't regret a second of it. Paying off my debt is one of the most empowering periods of my life. It taught me that I can face anything in life and can not only survive but thrive. It taught me to adapt, learn and grow.

Best of all, it was so worth it. People are right when they say that the ones who earn interest sleep better than the ones who pay it.

How has your sleep been?

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Author's bio: Maria Nedeva is the founder of The Money Principle where she teaches people in financial trouble how to build sustainable wealth. You can follow Maria's work on Facebook and Twitter.

Thursday, May 25, 2017
Debt Support Trust
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Britons Worry About Level of Debt Due to Brexit

British consumers are worried about the effects Brexit could have on their personal finances, including their level of debt.

A new survey by Mintel has found 83% of Brits believe prices of goods and services will increase due to the UK leaving the European Union.

Almost half of those surveyed (46%) said they believe the UK leaving the EU will have a negative impact on the cost of living.

37% said they are worried about their level of debt, while 48% are concerned about how they will manage to pay bills.

Jack Duckett, at Mintel, said: "Mintel research underlines particular concern about the rising cost of in-home food, and inflation is undoubtedly going to squeeze household budgets.

Although, there was a positive result from the poll, 31% of people believe Brexit will have a negative impact on the economy, which is down from 39% in July last year.

Dealing with Debt Post Brexit

There's still a lot to be negotiated between the UK and European Union, making it difficult to understand the full effect Brexit will have on the UK economy.

Debt solutions will likely remain the same, or at least not change due to Brexit, because these are already regulated and operated within the UK.

Whether Brexit has a negative impact on personal finances or not it's important people who are struggling financially seek advice.

Dealing with Debt Before Brexit

Anyone who is concerned about their finances in a post-Brexit UK should seek immediate debt advice before the transition is finalised.

There is around two years to go before the UK finally leaves the EU and this time can be used to deal with debts and prepare household finances.

If you or anyone you know requires debt advice they can speak to Debt Support Trust on 0800 085 0226.

Monday, May 22, 2017
Debt Support Trust
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Help With Debt

Debt problems affect everyone differently. For some people it's a debilitating problem which results in lack of sleep, increased anxiety and a fear to open the post or answer the telephone. But, for other people, it's much more easily managed.

One of the reasons debt affects people differently is that debt problems can vary - a problem for one person may be easily resolved by another.

At Debt Support Trust, our charity helps people around the UK that want to resolve their worrying debt issues. We listen and provide advice in complete confidence. Our goal is to give you every option that you're applicable for and we can explain why some debt solutions may not be suitable for you.

Tailored Advice is Vital

Advice which is specific to your situation is imperative. The wrong advice and you can find that your debt solution is negatively impacting on your future, instead of making the problem better.

We spoke to somebody recently about their husband's bankruptcy. They were advised by a friend to go bankrupt - because that's the route they took and it was the best decision of their life.

For some people, bankruptcy is an excellent debt solution which will enable them to rectify their troublesome debts while continuing to live. However, in this instance it was the wrong advice from their friend.

The couple owned a property with over £100,000 worth of equity and the couple were both in employment with an excellent monthly salary. In bankruptcy, you are obligated to pay what you can reasonably afford in an income payment order and any assets will be realised for the benefit of creditors. In short, the couple would have to raise money from their house to pay a fair percentage to the bankruptcy.

The original debt was £27,000. With the bankruptcy fees and charges the debt rose significantly. In circumstances like this we can provide advice on how to negotiate with your trustee, however, had we spoken to the couple beforehand we would never have recommended bankruptcy.

This highlights the need for tailored debt advice specific to your personal and financial situation. We can help with debt problems by providing confidential advice and in this set of circumstances we would have recommended a number of alternative options, which were not bankruptcy.

Getting Help With Debt

Our research from when we speak to people in debt suggests people spend an average of one year worrying about debt before taking action and seeking advice.

"The hardest part is talking about the problem. My friends and family don't know about my financial problems, but I know I need help".

Our debt advice charity is on hand to listen and advise you, in confidence, on the best routes to resolve your debt problems. We'll provide you with every option, along with the positives and negatives, so you are empowered to make the decision.

Debt Support Trust helps people around the UK between Monday - Friday 8am - 7pm or you can get debt help via our debt analyser 24 hours a day, seven days a week.

analyseyourdebt

Thursday, April 20, 2017
Debt Support Trust
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Signs You Could Have a Debt Problem

It's often perceived that credit is good and debt is bad. However, every year good credit goes bad for thousands of people. Borrowing money can help you achieve your personal objectives, such as home improvements, but we explore some of the signs that you could have a debt problem because of troublesome credit.

For most people that get into debt they tell us "I wish I had something to show for the debt". The reason most people don't have a luxury house, designer clothes or have travelled the world on credit is because that rarely happens.

Credit is frequently used as a "buy now and pay it later" financial service. But, along the way, it's not uncommon for people to struggle with their once affordable credit commitments.

Reasons For Debt Problems

There are numerous reasons why a person can find themselves struggling to manage their credit commitments. Nobody ever wants to be in debt, so why does it happen?

  1. Loss of Income: During a period of unemployment many people turn to a line of credit to survive. If the unemployment continues for longer than anticipated then the debts continue to mount.
  2. Separation / Divorce: A change in circumstances, such as separation or divorce, can create a debt problem. The cost of living in a couple is often more affordable as the bills are split. This is particularly true when the debt existed while in the relationship and you're trying to repay the money borrowed at the same time as managing your enhanced expenditure.
  3. Consistent overspending:  The intent when borrowing money is always to repay it. However, debt can grow and become unmanageable.
  4. Unexpected repayments: Many benefits, among other debts, can be overpaid in error and repaying these can be difficult. Typically, repayment plans can be setup so the debt can be repaid, but if the repayment period is too long a debt solution may be required.

Debt Problem: What are the signs?

On average, it takes 7 years of accruing debt and a year of struggling to make the monthly payments, before it becomes impossible and people seek debt help.  There are signs that you may be struggling with your debt and these are our top 5:

  1. Minimum payments: Making minimal payments towards debts because that's all you can afford is a sign you need debt help.
  2. Feeling of dread: When the bills arrive through the door do you fear opening them, so they mount in a corner? Many people in debt feel unable to open bills when they know their debt has become unmanageable.
  3. Credit to survive: Continually using credit to pay for food or living costs because your salary and income is used to pay debt is a sign you could need debt advice.
  4. Consistently balance transferring: Using the balance transfer with interest free period features of a credit card is an excellent route to repay debt, without having to pay interest. However, if you're balance transferring and continuing to make the minimum payments then the debt isn't going anywhere.
  5. Family and Friends: If you've stopped socialising with friends and arguments with family are increasing, this could be a sign of debt and money worries.
  6. At Night: Is your debt often the last thing you think about before bed and the first thing you think about in the morning?

How to Deal with Debt?

Once you know you have a debt problem you can always speak to a debt advice charity like Debt Support Trust. However, if you don't feel ready to talk to anybody about your money worries you can complete a statement of affairs.

Your statement of affairs considers your monthly income and then what your expenditure is for essential items like food, mortgage/ rent, council tax and travel.

In a separate column, list the companies you owe money to and a rough balance. If you have any assets like stocks, shares, bonds or equity in your house you should list these under assets.

Once you've completed this process you will know how much your cost of living is each month and how much money you have available to repay towards debts.  You can speak to a debt advisor at Debt Support Trust who will be able to talk you through all of your options.

Alternatively, you can complete the debt analyser online which summarises your income, expenditure, assets and debts.

analyseyourdebt

Friday, March 24, 2017
Debt Support Trust
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Government Urged to Help Families

The impact of personal debt on families is unmeasurable. How do we place a value on the resulting stress and fear debt problems create? Whether it's debt collectors at the door or families arguing due to money worries, can we comprehensively measure the implications of troublesome debt?  The Children's Society is calling on the Government to provide legal protection to help families with problem debts.

The proposal would include a 12 month moratorium to help families in debt organise their finances without the pressure from creditors and with payments and interest frozen.

Interest Free Period - The Research

The Children's Society research suggests that 620,000 families are spending more money on overdue bills than on food.  38% of families are borrowing money in order to pay for essential living costs like food.

Our own research at Debt Support Trust suggests that people typically fall into the debt trap because of unforeseen circumstances. For example, separation or divorce, loss of income or a change in circumstances are typical reasons for debt problems. A debt which was once manageable can quickly become a repayment issue.

The proposed changes recommended by The Children's Society could help protect children from the societal effects debt can cause.

Managing Debt - The Effects

Debt problems often result in quick decisions. We found that people spend roughly seven years accruing debt, a year worrying about it before they make an immediate decision on how to deal with the debt.

If people had a period of protection from their creditors to help make an informed decision on their financial future, could that help guide more people towards the correct debt solution? Would fewer people enter bankruptcy because they realised they could potentially repay the debt?

In our experience, very few people want to enter a debt solution. In truth, it's the complete opposite- they wish they never had to pick up the phone and make the telephone call. If 12 month moratorium periods were submitted by debt advice charities it would encourage people to seek advice and protection, so they could consider their options without the threat of creditor action.

In any event, the safety and security for children would be enhanced. Parents would be able to budget with a charity advisor and receive necessary advice on their finances. Barnardo's estimates there are 3.7 million children living in poverty in the UK. Positive action must be taken to alleviate this social and financial crisis and it starts with changes within the Government.

Tuesday, March 07, 2017
Debt Support Trust
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Valentine's On A Budget

Love is in the air as Valentine's day is fast approaching. But, with forecasts predicting sales to topple last years estimated £470 million spend, how can you say "I love you" without breaking the bank?

A week today, we'll be romancing the people we love with gifts, dinner and our time. While the latter may be free, the cost of gifts can leave our bank balance a little unloved.  So, without being a miser at this time, we've provided our top tips to express your love and save a little money in the process.Hands-Heart

Top tips to save money at Valentines

We've got some top tips to manage your money during Valentine's day:

  1. Cook a romantic meal: Dinner out can often be rushed with set times, never mind the limited set menu. Improve your Valentine's night and save money by making a romantic home cooked meal!
  2. Buy in advance: Waiting until the last minute often means a reduced selection and what's left could be more expensive than you planned. Buy it now and keep it stored away!
  3. Personalise the day: While it's great to create a personalised card online, it can often be a more expensive process. You can buy Valentine's cards for less than £1 from places like the Card Factory and personalise it in your own words. However, if you do want to create an online personalised card you can do so at a reasonable cost with the Card Factory for around £2.50, including delivery.
  4. Set a budget: This goes for most shopping, but setting a realistic budget is vital. There's no point splashing the cash for one day if you'll struggle to survive for the rest of the month. Set your budget before you shop. It also helps to set a budget in advance with your partner.
  5. DIY Valentines: You can always keep costs down by making a gift yourself. Breakfast in bed, chocolate strawberries or a personalised gift box can show your partner you love them and manage your budget.

Remember, love and money don't necessarily go hand in hand. Diamonds may be a girl's best friend but they are pricey! And, the old adage is true, the best way to a man's heart is through his stomach and it doesn't have to be the most expensive restaurant.

Thrifty in Love

But it's not all bad news this Valentine's day - you can love your partner and your wallet at the same time! We've found some of the best deals to help you:

  1. Go to the cinema: Why not book a date to the cinema for Valentine's day? If you have 2 for 1 cinema tickets, from places like Meerkat Movies, then your Valentine's day could be action packed.
  2. MRoseFlowersHalf Price Flowers: £14.99 bouquet of flowers https://www.blossominggifts.com/midnight-rose.  Available until 13th February 2017.Use MROSE50 discount code at the checkout to save 50%!
  3. Spa Break: What about a spa day for two at Bannatyes? Groupon has some excellent deals https://www.groupon.co.uk/deals/bannatyne-s-health-club-h-o-8
  4. Eating out: If you do want to eat out, you can find deals on websites like Living Social https://www.livingsocial.co.uk/ to find deals suitable to your budget.
  5. An experience to remember: Virgin Experience days have deals https://www.virginexperiencedays.co.uk/valentines-special-offers worth considering including meals out, a night away and even tickets to comedy clubs.

Whatever you do this Valentine's day, have a great time. Love isn't measured in pounds and pence - think outside the box this Valentine's day and keep it personal to your partner. It's the thought that counts, so think about what they would like and what's personal to them. As we chat about Valentine's gifts at Debt Support Trust, some of the best and most memorable presents we've received include a mixed tape of personal songs, a picture of a happy time and a gift that was created from scratch.

Tuesday, February 07, 2017
Debt Support Trust
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Debt Causing Sleepless Nights

sleepDebt Support Trust has seen a rise in the number of people using our website to seek debt advice during the night.

It would appear from our latest statistics, debt is causing a greater number of sleepless nights than last year.

We have recorded a 32% increase in the number of visitors to our website between the hours of 12am - 8am, between Jan 16 - Oct 16, compared with the same period last year.

More concerning was the even greater increase in the number of people using our website between the hours of 3am - 5am, which saw a 37% rise in traffic.

Debt Worries Cause Sleepless Nights

We've all had sleepless nights due to stress or things we are worrying about and debt is no exception, with a number of previous studies showing it's one of the most common reasons for sleep problems.

In 2014, a study found 1 in 7 adults struggle to sleep because of financial and debt problems keeping them awake.

One of the most well-known causes for sleep problems is stress and debt is often attributed as one of the most leading causes for stress & anxiety.

Charity Trustee of Debt Support Trust, Stuart Carmichael said:

"It's common for people worrying about debt to find it difficult to sleep at night, but this research shows they are not alone. It's important to remember there are options and solutions to deal with debt problems."

"Debt Support Trust has an online debt test which can quickly give people an answer to their debt problem, should they find themselves worrying during the early hours."

DEBT HELP TO RELIEF STRESS

If debt is causing you to have sleepless nights, you aren't alone, our online debt test can be completely 24/7, 365 days of the year. Alternatively you can email us about your debt problem and we'll respond at the earliest available opportunity.

Whether it's day or night we don't believe anyone should suffer alone with debt problems, so let us help find you a solution.

 

Debt Support Trust has seen a rise in the number of people using our website to seek debt advice during the night.

It would appear from our latest statistics, debt is causing a greater number of sleepless night than last year.

We have recorded a 32% increase in the number of visitors to our website during the hours of 12am - 8am, between Jan 15 - Oct 15 compared with the same period this year.

More concerning was the even greater increase in the number of people using our website between the hours of 3am - 5am, which saw a 37% rise in traffic.

Debt And Sleep Problems

Wednesday, October 26, 2016
Debt Support Trust
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How Much Debt Do I Have?

One of the most common questions we hear at Debt Support Trust is, "I don't know how much debt I actually have".  For many people that don't have a debt problem, they may not fully understand how this can occur, but it's actually not surprising.

When the cycle begins and money is borrowed and repaid, there's no concern about the imminent arrival of a creditor statement landing on the doorstep. We know how much money has been borrowed and needs to be repaid. But, when a person becomes overstretched financially or a life changing event occurs, such as separation or loss of a job, it can be difficult to keep track of just how much money has been borrowed.

Being in debt and knowing the level of debt has grown to an unaffordable sum can result in people avoiding opening letters or answering telephone calls from creditors. This only accentuates the problem, but it's the primary reason people don't know how much debt they actually owe.

How to find out your level of debt?

The first step in any process to deal with debt is admitting a problem exists and that a solution is required if you're ever going to be debt free again. Ultimately, an issue with outstanding debts isn't going to disappear and it's best to tackle the predicament head on.

If you have moved property or have not heard from your creditors for some time, then you have two options to find out your level of debt. The first is to contact the creditor and ask for an up to date balance. Most people will find this intimidating, but it's the most accurate way to understand the outstanding debt. The second option is to apply to see your credit file via a credit referencing agency. Most credit referencing agencies will offer you a free trial, however, you'll have to cancel before the end of the trial or you'll be charged monthly for the service. One of our favourite websites is http://www.checkmyfile.com/ as it allows you to see reports from multiple credit referencing agencies in one place.

Know your debt? Get a Solution

Once you know how much debt you have, then you're in a position to understand what debt solutions are suitable for your circumstances.  Any debt advisor will struggle to give accurate debt advice without knowing how much debt is outstanding.

You may be suitable for a number of different debt solutions. It's the role of the debt advisor to explain every option, detailing the advantages and disadvantages of each solution to empower you to make an informed decision on how to deal with the unsecured debts.

You can speak to a debt advisor in confidence at Debt Support Trust on 0800 085 0226.

Friday, August 19, 2016
Debt Support Trust
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Bankruptcy Moves Online

Changes to the process for people wishing to make themselves bankrupt take effect today for people living in England, Wales and Northern Ireland.

The changes mean there's no longer a paper application and the fee has been reduced from £705 to £655.

We've outlined the changes so you're fully aware of how to make yourself bankrupt. It's important that prior to submitting an application you seek debt advice to ensure

Application to Enter Bankruptcy

Previously, the cost to enter bankruptcy was £705 and you would have to submit your paper application to the local court. However, from today the process has been simplified and it's completed online.

The fee to proceed has also been reduced to £655 (£130 application fee and £525 for the management fee). You can make instalments online to save for the debt solution.

If you need help and assistance to complete the online bankruptcy forms you can receive guidance from Debt Support Trust on 0800 085 0226.

Before Entering Any Debt Solution

It's important that prior to entering bankruptcy you seek professional debt advice. While this may be the correct debt solution, by seeking debt advice you can fully understand the implications of entering the solution to deal with unsecured debts.

A debt advisor can explain what will happen with any assets you own, what debts can and cannot be included in bankruptcy and if you will be required to make payments into your bankruptcy each month from your disposable income.

Debt Support Trust can give you advice on bankruptcy and other debt solutions on 0800 085 0226.

Wednesday, April 06, 2016
Debt Support Trust
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Getting Debt Advice

Getting debt advice is something people often do once they have exhausted all other options, including borrowing from friends and family and getting further credit.

While entering a debt solution may not always be the best solution, it is always advisable to seek advice to confirm the most suitable route forward.

The most common statement we hear from the people we help at Debt Support Trust is "I feel better after speaking to you" and that applies to people who enter a solution or simply get money advice.

A charity advisor helping you to deal with a debt problem will lift the weight and burden, which will likely have been on your shoulders for a long period of time.

A previous caller to the charity said they were in the process of having their property repossessed, something which could have been resolved with a debt solution 3 months earlier.

When To Get Debt Advice

The ideal time to get debt advice is when someone realises they are going to default on their financial obligations or immediately after. This allows the problem to be resolved quickly and often without the need to enter a debt solution.

The fear of dealing with debt can often be worse than the actual prospect of taking the first step - it's why we often hear "I got the best night's sleep in years after speaking with you". After seeking debt advice people often feel better about their financial situation, which is why we urge people not to deal with debt alone.

Getting debt advice early can help alleviate the stress which can grow and lead to more serious health concerns in the future. Debt Support Trust charity Trustee, Stuart Carmichael said,

"Rarely does anybody WANT to contact Debt Support Trust, they do so because they NEED to. People often worry about their debt problem for a year before taking steps to address the underlying issues. We never judge people and our advice team will give people the options appropriate for each individual person so they can once again be debt free."

sleep

Get Debt Advice Today

If you are struggling with a debt problem or think you will soon default on a contractual payment, contact Debt Support Trust on 0800 085 0226. Alternatively you can complete our online debt test.

Tuesday, February 16, 2016
Debt Support Trust
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