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Robbing Peter to pay Paul

Not a bad situation for Paul, but not so goods for Peter and definitely not good news for you. Many debtors find themselves in the situation where the only way they can afford to meet debt repayments is by borrowing from one source to pay another.

Credit rating

For some the idea of maintaining a very good credit rating is the most important factor. We dare not admit there is a problem and repaying all our debts is a must as far as we are concerned. And of course with a strong credit rating, we are likely to find extra credit relatively easy to find. We make our repayments but then don't have enough to live on, so to meet everyday living costs we utilise the overdraft, the new credit card - or even pay the minimum payment off our card and continue to use the card till we hit the limit.

Disguising the problem

Many people in serious debt have very good credit ratings. They make the repayments a priority but they have to draw further credit in order to live. They are robbing Peter to pay Paul. Their credit score disguises the real problem. They are paying out money they don't really have and the debt is growing. It's a double whammy!

When borrowing is justified

There may be circumstances when sensible borrowing makes sense. A low interest loan to clear high interest credit cards may make financial sense. Short term use of a 0% card offer may make balance transfers a wise option. However the idea of using credit to pay off credit needs to be approached with great care. Many people in debt pay a fortune out in interest rates and extra credit payments before admitting that there is a problem that needs addressing.

Potential solutions

Our bank or another lender may be able to help with consolidation offers. We may be able to utilise an asset (e.g. equity in property) in order to help clear debts. However it may be that before our debt runs out of control, we need to seek professional advice about the options open to us. An IVA or Debt Management Plan may be the solution to allow us to repay some or all of our debts with a single affordable payment, enabling us to break the credit trap. Maybe then Peter and Paul can be treated equally and fairly, and our finances can benefit as a result.

The above is provided as information only. Iva.co.uk does not provide debt advice. You must always seek professional advice before taking any action to resolve your debts.