If you are looking for help, click here to watch our interview with Caroline Hamilton, a debt adviser, from the CCCS. We've also compiled some tips which should also be of use.
How to get back on top of your finances
Create a monthly budget
Prioritisation should be the key for anyone serious about putting their finances on track. Examine all your income and outgoings and prioritise your bills - putting essential payments such as mortgage repayments and utility bills first. Only the money remaining after all bills are paid should be spent elsewhere.
Make cutbacks
It may sound harsh but many people in financial difficulty have no idea how much they are really spending each month. If you find your outgoings are significantly higher than your incomings you must make cutbacks even if this means significantly curtailing the standard of living you've become accustomed to - failing to do this will only make things worse in the long run.
Shop for the best deals
Even if you do have to make serious cutbacks, you still have to live but by changing your shopping habits you may be able to make significant savings. This can start with the day-to-day living costs such as buying supermarket own brands, and looking out for special offers, but it can be applied to all your expenditure. Make sure you're not paying out more than you need to each month by shopping around for better deals on financial products such as car insurance and home insurance, and on home services such as broadband and mobile phones.
Talk to your creditors
It is vital to talk to your creditors and the sooner you do this, the more likely you are to be able to resolve your debt problems without having to go down the route of a formal arrangement such as an Individual Voluntary Arrangement (IVA) or bankruptcy.
In light of the current economic slowdown, the Government and debt charities have appealed to lenders to be as helpful and sympathetic towards borrowers as possible. So if you're struggling to meet repayments get in touch with your lender and explain your situation. You may be able to negotiate a repayment holiday, or be able to pay back a reduced amount each month by extending the term.
Switch to a 0% balance transfer card
Depending on the severity of your financial problems, and the health of your credit history, you may qualify for one of the interest-free credit cards on offer. These are great if you owe money on expensive credit or store cards.
As long as you don't use these cards for additional spending you can pay off the money you owe without watching the bill get higher and higher each month. The longest 0% balance transfer offer in the UK is available on the Virgin Credit Card, which offers 16 months at 0% with a 2.98% fee and a typical rate of 16.6%. It is closely followed by the Capital One Balance Transfer Platinum Card at 0% until February 1, 2010 with a 3% fee and a 15.9% typical rate. Check out our credit card section for more 0% deals.
Pay back extra when you can
If you move a £3,000 debt to a credit card with a 10 month 0% offer, a typical annual rate of 15.9% and a 2.75% balance transfer fee, it would take you 23 years and two months to clear the debt if you only repaid a typical minimum payment of 2.5% each month - that's an additional £2,559.80 in interest. By contrast if you increased the payments to £50 a month, you'd slash the time taken to pay off the debt to just three years and five months, with the interest paid down to £397.90. So whilst it may not seem like the most 'fun' way to spend your excess cash, chipping away at debts will give you a lot more room for manoeuvre in the long run.
Pay by direct debit
Ensure you never miss a monthly payment by setting up direct debits. From there it's worth setting a limit for yourself on how much you can afford to withdraw each month so you ensure you never fall into an overdraft. Some banks offer texting services which will alert you if you are about to go overdrawn or are nearing your authorised overdraft limit.
Boost your income
Around £9.9billion in means-tested benefits went unclaimed last year. Visit entitledto.co.uk to see if you're missing out.
If you have time to take on some extra work then do so. Also consider selling some unwanted items in a car boot sale or on eBay to raise some cash.
Watch out for cold callers
With an increasing number of individuals struggling with debt, there are indications that some debt management companies are preying on the vulnerable. If you receive a phone call which gives a recorded message asking if you're finding it hard to keep up with your bills and credit repayments and that if you press a certain number you'll be put through to someone who can help don't do it.
These companies don't identify themselves during the recorded message so you have no idea who they are and while their sales spiel may sound tempting, they will be looking to make money from your desperate situation. There is help out there but acting on a call like this is unlikely to get you the best solution to your problem.
Organisations such as the CCCS, CAB or National Debtline are charity-run and therefore not profit making. However, such is demand at the moment that many people on our forums are reporting difficulties in getting through. Another option is a debt solutions firm such as Debt Matters and Think Money. These companies will charge a fee but this can be worth paying. Visit our debt channel for more information on where you can get help.
Be wary of firms claiming to be associated with other brands
We have received a number of complaints from people who have been called by The Loan Supermarket, believing it to be associated with moneysupermarket.com. The firm has nothing to do with us and rest assured that if you apply for a loan through moneysupermarket.com, you will never have to pay an upfront fee.
Can you consolidate?
Generally it's not advisable to borrow more money to get out of debt - by consolidating your debts you will lengthen your borrowing term and ultimately pay back more. However, if you're struggling to meet repayments on existing debts then consolidating them into one easy to manage monthly payment can make life more manageable and leave you with more money to put towards other bills each month.
Moneyback Bank offers a rate of 7.8%, while Sainsbury's Bank has a rate of 7.9%. Do bear in mind however, that the leading rates are only available to those with good credit scores - if you've missed payments in the past your credit score will have been affected. Use our Smart Search tool for a clearer picture of the deals you are likely to qualify for.
Consider a secured loan
Secured loans should not be taken out without caution - your property becomes equity meaning it will be at risk if you fail to meet repayments. However, because the lender has this security, acceptance rates are generally higher than with unsecured personal loans and interest rates are often lower. So if you're a homeowner and are confident you can meet the necessary repayments, a secured loan could be the solution - currently the market-leading offer is the Platinum Loan at 7.8%, only available at moneysupermarket.com.
Set up a debt management plan
If you have large debts, a consolidation loan may not be the best way to get your finances back on track. Instead, a debt management plan could be a better solution. This is an informal arrangement between you and your creditors where they accept lower monthly repayments which are affordable to you. Lenders may also be willing to freeze the interest on your debts.
You can do this yourself, but if you don't feel confident about contacting your creditors, one of the debt charities or a debt solutions firm will be able to help.
See if an IVA is the solution
If you owe more than you will realistically ever be able to repay, it may be worth considering an individual voluntary arrangement (IVA). This is a formal agreement between you and the county court to pay off debts over a determined period. It is set up by an Insolvency Practitioner who gathers a proposal for creditors which they can choose to accept or dismiss. If 75% or more of the companies that are owed money accept the agreement they write off any debt still outstanding after the agreed period - normally five years.
However, while this may sound appealing an IVA should not be entered into lightly - although your debts will be written off after five years, you may struggle to get credit in the future because of the impact on your credit score.
The likes of Think Money and Debt Matters can talk you through the benefits of an IVA and whether the product is suitable for you.
If you live in Scotland, IVAs don't exist. Instead you can apply for a Trust Deed - this is similar to an IVA and is a formal arrangement between an individual and his or her creditors.
Consider bankruptcy
The most extreme solution to debt problems is bankruptcy, but depending on your circumstances it may be the best option. One person in the UK is declared insolvent every five minutes. Bankruptcy will draw a line under your debts with the sale of any items of value that belong to you - you may also be required to make regular payments from your income. If you are facing overwhelming debt pressure it could be the solution because it limits the period over which you repay your debt and it provides legal protection. However, you will be subject to the control of the court, you will face a loss of assets, such as your home and investments, and your access to credit will be severely limited.
Before taking a step so drastic get in touch with an independent advice company such as CAB or CCCS. You can also visit our debt solutions section and read our guides, or ask our forum users for their views in our community.
Have your say: Are you struggling to cope with debt? If you are, don't worry, you are not alone. Visit our forum as other members may be able to offer you advice and reassurance.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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