Search: Help with debt problems
- Check if you should consolidate your debt- Pros and cons of loans
- Switch to a cheaper credit card
With the economic situation worsening, bills rising and house prices falling, many people are having to borrow even more to stay financially afloat.
If you have got into debt, the best thing you can do for the sake of your wallet - and your health - is to confront the issue head on, now. Here's a 10 stage plann to improve your situation:
1. Budget
Before you can do anything about reducing what you owe, you need to know your incomings and outgoings. To do this, you must carry out a personal budget. As well as giving you an idea of how you stand financially, this can act as a brake on your spending.
Write down the cost of your monthly mortgage, loan and credit card repayments along with regular bills and any other regular expenses, such as insurance and pension payments.
Next, work out the rest of your household spending (food, going out etc) using our calculator: (click here).
Add all your expenditure together to show how much you spend each month.
Now, add together your monthly income: your salary, overtime, pension, benefits, tax credits and so on. Write the results down on a sheet of paper, to give you something to refer back to.
You will now have a clear idea of your disposable income. The Consumer Credit Counselling Service (www.cccs.co.uk) warns that if debt repayments take more than a fifth of your monthly budget then you are in financial peril.
Once you have appraised your situation, prioritise your debts.
Those that will cause you the biggest problems if you default must be dealt with first. Mortgage arrears, for example, could eventually result in you losing your home, while defaulting on income and council tax payments can lead to fines and even imprisonment.
Work out what you can pay on your debts each month and speak to your creditors. This is not as frightening as it sounds. Believe it or not, they are not going to give you into trouble.
They have people trained to deal with your situation. If you are honest with them, they are far more likely to agree to some kind of repayment plan that ensures they get some money back.
If possible, try to make more than the minimum repayment on credit cards. It can take years - decades even - to pay off a card debt if you only pay the minimum each month, and it'll cost you a packet in extra interest.
If you can't increase your income, you'll have to take steps to reduce your outgoings. Cut back on going out and luxuries as much as you can, but be realistic. There's little point in living like a monk for two weeks, then becoming so bored that you splurge in the shops.
If you discover you are in very serious debt trouble - that is, if you are regularly defaulting on your mortgage and other debts - it might be time to look into applying for an Individual Voluntary Arrangement.
This is a structured way of paying back a reduced amount of what you owe. You can find out more about these agreements by reading our IVA guide.
2. Get savvy There are ways and means to cutting all aspects of your expenditure. First, look at your structured debts (mortgage and loans), and then tackle your unstructured debts (credit and store cards).
If you feel you could get a better mortgage, compare thousands of loans on the market here.
Before you leap in and switch however, check the small print on your present loan to find out if you will be penalised financially for switching. Such fees can be costly and cancel out any savings you make.
If you hammer the plastic over Christmas, you may be dreading your next credit card statement. If so, try to switch the balance to a zero per cent card.
While it is true that there are less of these deals around than there were a year ago, mainly due to the current 'credit crunch, there are still some tempting offers.
The only catch - as with most of these offers now - is that there is a fee charged, often around 2 per cent of the balance you transfer.
The other catch with zero per cent transfer cards is that the majority of people who take them up don't keep track of when the deal ends. At this point, the interest charged will revert to a standard rate, usually around 14 per cent. This is how the banks make their money on such deals.
If you fear this may happen to you, go for a low 'life of balance' rate.
Shop for a better credit card here.
If you have a personal loan, shop for a better deal here.
A final tip: Be very careful when considering consolidating your loans. They look convenient and are endorsed by toothy celebs. However, you may end up paying back an enormous amount of interest. You can calculate if it's a wise move for you using our caclulator
3. Cut up your store cards
If you have any store cards, cut them up immediately and put them in the bin. Seriously. Unless you clear your balance every month, they are an outrageously expensive source of credit.
Some charge over 30 per cent per annum interest on what you borrow.
While you're at it, cut up your credit cards too. If you absolutely have to keep a card for emergencies, immerse it in a bowl of water and stick it in the freezer. Faintly ridiculous, but surprisingly effective.
4. Cut your household bills
Gas bills are expected to rise strongly in 2008. They came down somewhat in 2007, but this was after some major increases in 2006.
You don't have to wait for your supplier to play fair. Cut your gas and electricity bills here.
The savings don't end with your bills. You can cut the amount of energy you waste easily. Visit Tiscali's Energy Saving Trust section to carry out a Home Energy Check and an Energy Obesity Check. Find out more here.
5. Pay less for your water
You could well be paying over the odds for the amount of water you actually use. If you haven't been forced to get one already, you may be able to have a water meter installed in your home free of charge. Contact your water supplier to find out.
6. Get organised
Once you've sorted through the mire of your finances, take steps to keep a grip on things. The easiest way to do this is to set up a second bank account solely for paying bills. Make sure it has Direct Debit, Standing Order and cheque facilities. Compare accounts here.
If you feel you can spare a little extra each month, set up a third account for savings. Compare accounts here.
If you're rather scatty when it comes to paperwork, bank online. All major banks now offer simple online banking. This is a far easier way of monitoring your debts than hunting down old statements etc.
7. Spend less
Obvious, yes. But there are hundreds of ways to cut back on your daily expenditure without resorting to living a puritanical, fun-free life.
Keeping a diary of what you eat and/or spend is a surprisingly effective way of reducing how much you spend on food and drink, particularly during the working day.
If possible, avoid doing the weekly shop in a supermarket - farmers markets and your local greengrocer, butcher and fishmonger (if you are fortunate enough to have them) will almost certainly offer savings.
Shop online for goods by using price comparison websites.
If you're not planning on buying anything, leave your bank card at home when you go to work or go out.
Don't just automatically renew your insurance policies. It's easy to find a better deal on household, car and life insurance policies, as well as breakdown cover. Look for better cover here.
If you feel your situation is spiralling out of control, start to buy everything on a cash basis. Paying for more expensive goods with cash will often get you a reduction in price - don't be afraid to haggle.
8. Make talk cheaper
There are now hundreds of home telephone packages to choose from, offered not just by established operators such as BT, but also by satellite television and broadband providers, including ourselves here at Tiscali.
Compare different products here.
The mobile phone market is ultra competitive. If you are out of contract, you are in a strong position to renegotiate your existing tariff with your provider. If they won't cut your monthly fee (an unlikely scenario), they should offer free minutes or texts. If they don't, walk. It's relatively straightforward and you can keep your phone number.
If you are a light mobile user, you could save hundreds of pounds over the course of a year by switching to a Pay as You Go tariff. The Consumer Association (www.which.co.uk, registration required) offers a useful switching calculator and explains how all the different price plans work.
9. Get expert help
Simply sharing your debt problem will come as a relief. Fortunately, doing this will also set you on the road to recovery.
There are a number of organisations you can turn to for free and confidential advice if you are in financial trouble. The main players are Citizens Advice (www.adviceguide.org.uk); The Consumer Credit Counselling Service, which offers a personalised online 'debt remedy' (www.cccs.co.uk); and National Debtline (www.nationaldebtline.co.uk).
These three bodies are independent and can put you in touch with trained debt advisers.
10. Be SMART
Set yourself goals, but make sure they are Specific, Measurable, Attainable, Realistic and Timely. In other words, write down what you want to have achieved in terms of clearing your debts, over one month, three months, six months, one year, two years, three, five and so on.
Next to each goal, write down how you hope to achieve it - that is, what steps you need to take. Pin this document somewhere prominent and keep it in mind.
Be realistic about what you can achieve in those timescales. Even if you only chip away a small amount of what you owe, you will have made measurable progress, which is a great incentive to carry on.
Above all, if you are worried, seek professional advice and keep hold of a sense of perspective. Being in debt is not the end of the world.
Usually you will be able to come to an arrangement with your creditors, even if that means taking out an IVA. And unless you let things slide very badly, you needn't necessarily lose everything.
The key is to communicate: talk to your bank and to debt advisers, and tell them the absolute truth. If you are upfront and professional about your problem, they will be more inclined to help you.
