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.

PROMOTED VIDEO
Arts and Entertainment
booksPhotographer Richard Young has been snapping celebrities at play for 40 years - but he says it wasn’t all fun and games...
News
i100
Sport
Aguero - who single-handedly has kept City's Champions League dreams alive - celebrates his dramatic late winner
footballManchester City 3 Bayern Munich 2: Argentine's late hat-rick sees home side snatch vital victory
News
Muhammad Ali pictured in better health in 2006
peopleBut he has enjoyed publicity from his alleged near-death experience
Arts and Entertainment
Tony breaks into Ian Garrett's yacht and makes a shocking discovery
TVReview: Revelations continue to make this drama a tough watch
News
news
News
peopleSinger tells The Independent what life is like in rehab in an exclusive video interview
News
The assumption that women are not as competent in leadership positions as men are leads to increased stress in the workplace
science... and it's down to gender stereotypes
Arts and Entertainment
Inner sanctum: Tove Jansson and friends in her studio in 1992
booksWhat was the inspiration for Finland's most famous family?
News
i100
Arts and Entertainment
Singer songwriter Bob Dylan performs on stage
films
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

    Citifocus Ltd: Product Development - Asset Management

    £Attractive: Citifocus Ltd: High calibre individual with significant product d...

    Citifocus Ltd: Credit Ratings - Banking Sector

    £Negotiable: Citifocus Ltd: Leading global bank seeks experienced credit analy...

    Citifocus Ltd: Economic Crime Investigation & Analysis

    £Attractive Package: Citifocus Ltd: High calibre individual with a high degree...

    Citifocus Ltd: Snr Risk Analyst - Capital & Liquidity

    £Attractive: Citifocus Ltd: High calibre individual with superior academics an...

    Day In a Page

    Homeless Veterans Christmas Appeal: Drifting and forgotten - turning lives around for ex-soldiers

    Homeless Veterans Christmas Appeal: Turning lives around for ex-soldiers

    Our partner charities help veterans on the brink – and get them back on their feet
    Putin’s far-right ambition: Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU

    Putin’s far-right ambition

    Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU
    Tove Jansson's Moominland: What was the inspiration for Finland's most famous family?

    Escape to Moominland

    What was the inspiration for Finland's most famous family?
    Nightclubbing with Richard Young: The story behind his latest book of celebrity photographs

    24-Hour party person

    Photographer Richard Young has been snapping celebrities at play for 40 years. As his latest book is released, he reveals that it wasn’t all fun and games
    Michelle Obama's school dinners: America’s children have a message for the First Lady

    A taste for rebellion

    US children have started an online protest against Michelle Obama’s drive for healthy school meals by posting photos of their lunches
    Colouring books for adults: How the French are going crazy for Crayolas

    Colouring books for adults

    How the French are going crazy for Crayolas
    Jack Thorne's play 'Hope': What would you do as a local politician faced with an impossible choice of cuts?

    What would you do as a local politician faced with an impossible choice of cuts?

    Playwright Jack Thorne's latest work 'Hope' poses the question to audiences
    Ed Harcourt on Romeo Beckham and life as a court composer at Burberry

    Call me Ed Mozart

    Paloma Faith, Lana del Ray... Romeo Beckham. Ed Harcourt has proved that he can write for them all. But it took a personal crisis to turn him from indie star to writer-for-hire
    10 best stocking fillers for foodies

    Festive treats: 10 best stocking fillers for foodies

    From boozy milk to wasabi, give the food-lover in your life some extra-special, unusual treats to wake up to on Christmas morning
    Phil Hughes head injury: He had one weakness – it has come back to haunt him

    Phil Hughes had one weakness – it has come back to haunt him

    Prolific opener had world at his feet until Harmison and Flintoff bounced him
    'I have an age of attraction that starts as low as four': How do you deal with a paedophile who has never committed a crime?

    'I am a paedophile'

    Is our approach to sex offenders helping to create more victims?
    How bad do you have to be to lose a Home Office contract?

    How bad do you have to be to lose a Home Office contract?

    Serco given Yarl’s Wood immigration contract despite ‘vast failings’
    Green Party on the march in Bristol: From a lost deposit to victory

    From a lost deposit to victory

    Green Party on the march in Bristol
    Putting the grot right into Santa's grotto

    Winter blunderlands

    Putting the grot into grotto
    'It just came to us, why not do it naked?' London's first nude free runner captured in breathtaking images across capital

    'It just came to us, why not do it naked?'

    London's first nude free runner captured in breathtaking images across capital