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
The Sumatran tiger, endemic to the Indonesian island of Sumatra, is an endangered species
voicesJonathon Porritt: The wild tiger population is thought to have dropped by 97 per cent since 1900
News
These photographs released by the University of Maryland Medical Center show images of full face transplant recipient 37-year-old Richard Lee Norris of Hillsville, Virginia
mediaGQ front page features man who underwent full face transplant
Sport
Lionel Messi looks on at the end of the final
football
Arts and Entertainment
tv
PROMOTED VIDEO
News
Prince Harry is clearing enjoying the Commonwealth Games judging by this photo
people(a real one this time)
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
Sport
Van Gaal said that his challenge in taking over Bobby Robson's Barcelona team in 1993 has been easier than the task of resurrecting the current United side
football
News
The Swiss Re tower or 'Gherkin' was at one time the UK’s most expensive office when German bank IVG and private equity firm Evans Randall bought it
news
Sport
Moeen Ali wearing the 'Save Gaza' and 'Free Palestine' wristbands on his left arm
cricket
Arts and Entertainment
The Great British Bake Off 2014 contestants
tv
Life and Style
tech
Arts and Entertainment
filmThe Battle of the Five Armies trailer released
News
news
Arts and Entertainment
Beast would strip to his underpants and take to the stage with a slogan scrawled on his bare chest whilst fans shouted “you fat bastard” at him
musicIndie music promoter was was a feature at Carter gigs
Arts and Entertainment
Story line: Susanoo slays the Yamata no Orochi serpent in the Japanese version of a myth dating back 40,000 years
arts + entsApplying the theory of evolution to the world's many mythologies
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

    HR Business Partner (Maternity Cover 12 Months)

    £30000 - £34000 Per Annum 25 days holiday, Private healthcare: Clearwater Peop...

    Business Analyst - London - Banking - £400-£450

    £400 - £450 per day: Orgtel: Business Analyst - Credit Risk - Banking - London...

    Project Manager,Conduct Risk,London,£5-600pd

    £500 - £600 per day + competitive: Orgtel: My client, a leading bank, is curre...

    Senior Fund Administrator - Edinburgh - £22 p/hr

    £20 - £22 per hour + competitive: Orgtel: Senior Fund Administrator, Top Four ...

    Day In a Page

    The children were playing in the street with toy guns. The air strikes were tragically real

    The air strikes were tragically real

    The children were playing in the street with toy guns
    Boozy, ignorant, intolerant, but very polite – The British, as others see us

    Britain as others see us

    Boozy, ignorant, intolerant, but very polite
    Countries that don’t survey their tigers risk losing them altogether

    Countries that don’t survey their tigers risk losing them

    Jonathon Porritt sounds the alarm
    How did our legends really begin?

    How did our legends really begin?

    Applying the theory of evolution to the world's many mythologies
    Watch out: Lambrusco is back on the menu

    Lambrusco is back on the menu

    Naff Seventies corner-shop staple is this year's Aperol Spritz
    A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

    A new Russian revolution

    Cracks start to appear in Putin’s Kremlin power bloc
    Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

    Apartheid’s sadistic killer that his country cannot forgive

    The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
    Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

    Standing my ground

    If sitting is bad for your health, what happens when you stay on your feet for a whole month?
    Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

    Greene prays for chance to rebuild after injury agony

    Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
    Israel-Gaza conflict: Secret report helps Israelis to hide facts

    Patrick Cockburn: Secret report helps Israel to hide facts

    The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
    The man who dared to go on holiday

    The man who dared to go on holiday

    New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
    Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

    Best comedians: How the professionals go about their funny business

    For all those wanting to know how stand-ups keep standing, here are some of the best moments
    The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

    The Guest List 2014

    Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
    Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

    Jokes on Hollywood

    With comedy film audiences shrinking, it’s time to move on