Debts out of control? Here's what you can do

Costs are soaring and times are tough, but there are ways to fix your finances. Here's how, says James Daley

Rising food prices, soaring fuel costs and higher borrowing rates have started to put the squeeze on British households over the past few months. For many families, these sudden sharp rises have forced them to cut out life's luxuries – and even then, some are still struggling to meet debt repayments and are at increasing risk of default.

If you're finding it difficult to keep on top of your debts, however, the earlier you take some action, the more likely you are to avoid getting into serious difficulty. Services like the Consumer Credit Counselling Service ( www.cccs.co.uk) and Citizens Advice ( www.citizensadvice.co.uk) offer free advice, regardless of how bad your situation is. You might consider these points.



Pay less interest

If you're still just about managing to pay your debts but think you're running into trouble, the first step is to make sure you're getting the best possible deal on your loans and credit cards.

Although the credit crunch has meant that it's harder to get your hands on new loans and cards than it was a year ago, there are still a number of 0 per cent balance transfer credit-cards on the market – some which remain interest-free for as long as 15 months ( see table ).

If you're holding a balance on one or more cards – and paying just a little bit back each month – the chances are that you'll be paying an interest rate as high as 19 per cent APR. If you can transfer these to a 0 per cent card for a year, you could save hundreds of pounds in interest – and you'll also give yourself the chance to cut back on your monthly repayments while you get on top of your finances.

David Black of Defaqto, the financial analysts, warns that if you do take out a balance transfer credit-card deal, it's imperative that you don't do any additional spending on the card – as this will start to accrue interest.

If you can't get your hands on a 0 per cent credit card, it may still be worth taking out one large loan to pay off all your other debts – if you can secure one at a reasonable rate.

The best personal loan rates on offer at the moment are under 7 per cent APR. However, Black warns that these are really hard to come by. "If you see a good rate advertised, the lender must make it available to two-thirds of successful applicants," he says. "However, loans that appear in the best-buy tables tend to have a much higher rejection rate."

So you may still be forced to continue holding your debt on a credit card with a high interest rate. If so, says Frances Walker of the Consumer Credit Counselling Service, it's important to pay down more than the monthly minimum. "If you borrowed £2,000 on a credit card and just made the monthly payment each month, it would take you 20 years to pay off your balance," she says.

If you can, pay more money towards your higher-interest-bearing debt each month – such as credit cards and store cards – as this will work out cheaper in the long run.

Be wary of TV debt adverts

If you're ever at home in the daytime, it's hard to miss the endless stream of debt-consolidation adverts shown between the programmes. Although these can be useful for a small number of people, Frances Walker warns that, in 90 per cent of cases, people will be better off pursuing alternative solutions to their debt problems. "Nine times out of 10, we don't think these are a good deal," she says. "For a start, you are turning unsecured debt into secured debt – so you are putting your home at risk. But they may be suitable for a small number of people who have a lot of equity in their homes."

Be sure to budget properly

Walker says that, although it may seem an obvious point, the most important step for people in debt difficulties is to come up with a clear budget plan that they can stick to. Websites such as www.moneymadeclear.fsa.gov.uk have budget calculators that can help you to plan your finances. If you are already in real difficulties, services such as the CCCS can help you to draw up a realistic budget and can negotiate some leeway with your creditors.

Talk to your lenders

If you need to take a month or two off paying your debt, then it's always worth talking to your lender. In many cases, they will be happy to give you a few months leeway – as long as they are convinced that you are still committed to paying off your loans.

If you've got a large number of creditors, the CCCS can talk to your creditors for you and can arrange for you to make a small payment each month, which will be split among the creditors. Usually, they will also get them to freeze interest on your loans.

If you have a total of more than £15,000 in debts, you may qualify for a plan known as an Individual Voluntary Arrangement (IVA), which will see a proportion of your debts written off and the remainder consolidated into a single plan, with one manageable monthly payment.

There are a number of private companies that offer these, but the CCCS and Citizens Advice should be able to advise you as to whether this might be a suitable route in your case.

Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
voicesIs a huge gamble on oil keeping the First Minister up at night?
Arts and Entertainment
Rosalind Buckland, the inspiration for Cider with Rosie died this week
booksBut what is it like to be the person who inspires a classic work of art?
Life and Style
techApple has just launched its latest mobile operating software – so what should you do first?
News
A male driver reverses his Vauxhall Astra from a tow truck
newsThe 'extremely dangerous' attempt to avoid being impounded has been heavily criticised
PROMOTED VIDEO
Arts and Entertainment
Lionel Messi in action for Barcelona
filmWhat makes the little man tick?
Arts and Entertainment
tvReview: An undercooked end (spoiler alert)
News
i100
Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'
Sport
Cesc Fabregas celebrates his first Chelsea goal
footballChelsea vs Schalke match report
Arts and Entertainment
Toby Jones (left) and Mackenzie Crook in BBC4’s new comedy The Detectorists
tvMackenzie Crook's 'Detectorists' makes hobby look 'dysfunctional'
Life and Style
fashion

Olympic diver has made his modelling debut for Adidas

News
i100
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trainee Recruitment Consultant Birmingham

    £18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Recruitment Consultant - Soho - IT, Pharma, Public Sector

    £20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

    Sales Executive

    £20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week