Many people find that borrowing a bit of money when they need to is a handy way of giving their income a boost – for instance, if they need to cover the cost of DIY or some unplanned home repairs.

However, in the current climate, with living costs rising and disposable incomes falling, manageable borrowing could easily turn into debt problems if you find you can no longer afford your unsecured debts and you fall behind on your monthly repayments.

Debt problems can have a big impact on your finances. Missing payments could lead to mounting fees and charges, a damaged credit rating and – further down the line – legal action from your unsecured lenders (e.g. they may decide to apply for a County Court Judgment (CCJ) against you).

If you can’t afford your payments to your debts, you may have to enter a debt solution, which, although it could help you get on top of your debts again, could also affect your banking options.

Here we’ll look at how debt and bad credit could affect your banking options.

Debt solutions & your credit score

If you’re dealing with debt problems, you should get professional debt advice as soon as possible. You may be recommended a debt solution such as a debt management plan, IVA (Individual Voluntary Arrangement) or, if you’re having really serious problems with your debts, bankruptcy.

Although these approaches are designed to give struggling borrowers a realistic way of paying whatever they can towards their unsecured debts, each one will affect the borrower’s credit rating for six years.

Having a poor credit history can come with many financial consequences. If you’re looking to open a standard bank account, for example, you’ll be expected to pass a credit check before a bank will take you on.

As a result, if you’re currently on a debt solution, or have recently finished one, it’s quite likely your application for a current account will be rejected.

How could a basic bank account help?

Basic bank accounts – an example of which can be found here – are designed to help people who have otherwise been ‘excluded’ from banking in the usual way.

A basic bank account, as the name suggests, provides a ‘basic’ way of managing your money: you’ll be able to have any income you receive paid into your account, set up Direct Debits and standing orders to pay bills, withdraw your money from ATMs, etc. It won’t offer an overdraft or cheque book.

What’s more, a basic bank account doesn’t require a credit check, so if you’ve had debt problems in the past, they shouldn’t affect your chances of opening this type of account in the present.

A bad credit mortgage is often necessary when you have poor credit history because of problems making payments due unforeseen financial problems. A mortgage borrower will sometimes need to switch to a bad credit mortgage if its existing lender will not accept their application. Bad credit mortgage lenders are usually more understanding towards individuals with bad credit and who are struggling financially. They will be more likely to lend to people with bad credit as they will look at each case on a case by case basis.

Your mortgage is usually the biggest financial commitment of your life. If you start to struggle making your repayments every month it sometimes worth looking at mortgages for bad credit to ease the burden. Mortgages for bad credit offer may give you the opportunity to pay of any existing debts and possibly reduce your monthly payments.

Mortgages for bad credit often help people raise extra capital when applying for a bad credit mortgage. This is sometimes an ideal situation when looking to pay off existing high interest debts etc.

Re-mortgaging is usually a great way for you to consolidate debt, carry out those much needed home improvements or go on that dream holiday you’ve always wanted too!

Most people never think about re-mortgaging as they think it’s too much hassle or they will never have enough time to look in to it.

You could be paying up to £2000 a year more than you need to and countless more thousands on unsecured debts like credit cards, personnel loans and store cards. Why not be smart about your money and make your largest asset, your property, work for you!

Your property is an investment at the end of the day and as an investment increases, like stocks and shares, why not use the equity (the real money) you’ve made and make your life easier and clear those unwanted debts or get that extended kitchen you’ve always wanted!

What is an IVA?

An IVA (Individual Voluntary Arrangement) is an agreement with your creditors to make a single reduced payment each month which lasts for a sensible period of time (normally 5 years). Once agreed, creditors are not allowed to add further interest or charges to your accounts by law. And the agreement is fixed – which means no more unnecessary charges.

The arrangement is governed by the Insolvency Act of 1986. A common misunderstanding is that people think undertaking an IVA is like going Bankrupt. This is not the case. The IVA is specifically designed to avoid the many issues and stigmas surrounding Bankruptcy.