Facing up to your debts is the first step to regaining control of your finances. The National Association of Citizens Advice Bureau recommends that you draw up a list of 'priority' and 'non-priority' debts.
'Priority' debts aren't your biggest debts but those where the creditors have most power. If you fall behind with your mortgage or rent, for example, you might lose your home. An electricity company can leave you in the dark and if you ignore a traffic fine or don't pay your council tax the court can send round the bailiffs or even jail you.
Priority debts include:
You can't be imprisoned for non-priority debts, although a creditor may still take you to court which might lead to the bailiffs arriving on your doorstep.
Non-priority debts include:
Knowing what you're worth
Draw up a list of your total income and all your outgoings. Try to be as honest and accurate as possible and stick to either monthly or weekly figures - don't mix and match.
Look at ways of increasing your income. Are you paying too much tax or are there any benefits you can claim? You might be eligible for family tax credit, for example. Could you fit in overtime or sell something to raise extra cash - perhaps a second car?
Borrowing more money isn't a good idea, but you could look at moving non-priority debts to another account that charges a lower interest rate. Check out the 0% credit cards currently available.
Remember that if you take this option you're likely to pay the debt off over a longer period of time.
Talk to your creditor
Contact the organisation you owe money to as soon as possible and explain why you are having problems paying. Several agencies such as the Citizens Advice Bureau offer free advice on how to approach creditors. In many cases the organisation will be relieved to know that you have sought outside help.
Be prepared to let the creditor know about your other debts. They may agree to accept lower payments if it's obvious you don't have a lot of cash stashed away. In rare cases they may even agree to a short payment holiday.
It's in everyone's interest to give you a chance to pay off your debts. A record of paying back loans will actually make banks more willing to lend to you in the future. But if don't tackle big debts in time it may prove impossible to find a mortgage when you want to buy a house.
For details of your local citizens advice bureau see: www.adviceguide.org.uk The Money Advice Association gives details of advisers in England and Wales: www.m-a-a.org.uk For details of Money Advice Scotland see: www.moneyadvicescotland.org.uk National Debt Line gives free information in England and Wales: www.nationaldebtline.co.uk
