Get rid of those smoking debts

Overstretched yourself? Melanie Bien shows how to put your finances in order

Too any of us are too impatient to save up for what we want, be it a new stereo, holiday or car. Instead, we would rather "buy now, pay later" using credit cards, personal loans, overdrafts or other finance deals, such as hire purchase. And even when it is time to pay up, full repayment can be quite easily deferred for months on end, as long as you cough up the interest.

Given this trend, it is no surprise that people are increasingly finding themselves in the red. According to Bank of England figures, Britons are in debt to the tune of £691.5bn, including mortgages, bank loans, credit cards and HP. Adverts for debt management companies, such as Baines & Ernst and Gregory Pennington, have proliferated in recent months – but there are better ways to manage your debt.

"Many people don't realise when they employ the services of a debt management company that they still owe money to the individual creditors," says Julie Moulsdale at Direct Line, which offers personal loans. "All they are doing, in effect, is slapping another charge on top – usually a 15 per cent management fee – so, in effect, adding to their debts."

Royal Bank of Scotland, Abbey National and Alliance & Leicester are calling on the Office of Fair Trading to make guidelines stricter and warnings on adverts mandatory. Debt management companies do not take over the liability for your debt; any legal action by your creditors will still be taken against you personally. In other words, the debts are still there and they are not being consolidated into one loan, although you will make only one payment each month to the debt management company.

All the debt management company does is rearrange the loan terms with your creditors and charge you for doing this. Some debt management companies also take a monthly commission from every payment you make to them, so you could find yourself even worse off.

If you get into financial difficulties, the first step is to see whether you can work out a repayment solution on your own. Most people should be able to do this unless they have very severe debt problems.

Calculate your net income and outgoings and see how much is left to pay off your debts. You need to deal with priority debts first – those which, if left unpaid, would have serious repercussions. These could include, for example, mortgage repayments and utility bills.

The next step is to get in touch with your creditors and ask if they would be prepared to accept smaller payments over a longer period. Most lenders should be able to come to an arrangement with you.

If you fall into arrears without speaking to your lender, or simply cancel a direct debit, legal action may be taken to recover what you owe. For this reason, you should inform your creditor as soon as you know you are going to have difficulty making a repayment. The temptation is to do nothing and hope the problem will go away, but this inevitably makes things worse.

If you really need help prioritising your debts, contact a Money Advice Centre, Citizens Advice Bureau or national counselling agency rather than a debt management company. These organisations provide free advice and assistance to those in financial difficulties.

Contacts: see your telephone directory for details of your nearest Citizens Advice Bureau, Money Advice Centre or Law Centre. To find a personal adviser near you, call the Money Advice Association (01476 594970, England and Wales only). In Scotland, call Money Advice Scotland (0141 572 0237). The National Debt Line is on 0808 808 4000 (Mon and Thurs, 10am-4pm; Tues and Wed, 10am-7pm; Fri, 10am-12pm).

Voices
Lucerne’s Hotel Château Gütsch, one of the lots in our Homeless Veterans appeal charity auction
charity appeal
Arts and Entertainment
Tony Hughes (James Nesbitt) after his son Olly disappeared on a family holiday in France
tv
News
people

Jo from Northern Ireland was less than impressed by Russell Brand's attempt to stage a publicity stunt

Sport
Scunthorpe goalkeeper Sam Slocombe (left) is congratulated by winning penalty taker Miguel Llera (right)
football
PROMOTED VIDEO
Arts and Entertainment
The Apprentice candidates Roisin Hogan, Solomon Akhtar, Mark Wright, Bianca Miller, Daniel Lassman
tvReview: But which contestants got the boot?
Life and Style
A woman walks by a pandal art installation entitled 'Mars Mission' with the figure of an astronaut during the Durga Puja festival in Calcutta, India
techHow we’ll investigate the existence of, and maybe move in with, our alien neighbours
Arts and Entertainment
Jim Carrey and Jeff Daniels ride again in Dumb and Dumber To
filmReview: Dumb And Dumber To was a really stupid idea
Arts and Entertainment
Sir Ian McKellen tempts the Cookie Monster
tvSir Ian McKellen joins the Cookie Monster for a lesson on temptation
News
i100
Travel
Tourists bask in the sun beneath the skyscrapers of Dubai
travelBritish embassy uses social media campaign to issue travel advice for festive holiday-makers in UAE
Arts and Entertainment
Jennifer Saunders stars as Miss Windsor, Dennis's hysterical French teacher
filmJennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress
Life and Style
tech
Sport
Nabil Bentaleb (centre) celebrates putting Tottenham ahead
footballTottenham 4 Newcastle 0: Spurs fans dreaming of Wembley final after dominant win
Voices
Jimmy Mubenga died after being restrained on an aircraft by G4S escorts
voicesJonathan Cox: Tragedy of Jimmy Mubenga highlights lack of dignity shown to migrants
Life and Style
Sebastian Siemiatkowski is the 33-year-old co-founder and CEO of Klarna, which provides a simple way for people to buy things online
tech
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

    Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

    £40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

    Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

    £45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

    Carlton Senior Appointments: Sr Wealth Manager - San Francisco - Inv AdvisoryFirm

    $125 - $175 per annum: Carlton Senior Appointments: Senior Wealth Manager – In...

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Day In a Page

    Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

    Jeb Bush vs Hillary Clinton

    Karen Tumulty explores the power dynamics of the two first families
    Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

    Stockholm is rivalling Silicon Valley

    The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
    Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

    Crucified Santa: Urban myth refuses to die

    The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
    Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

    The Boy in the Dress: On set with the stars

    Walliams' story about a boy who goes to school in a dress will be shown this Christmas
    La Famille Bélier is being touted as this year's Amelie - so why are many in the deaf community outraged by it?

    Deaf community outraged by La Famille Bélier

    The new film tells the story of a deaf-mute farming family and is being touted as this year's Amelie
    10 best high-end laptops

    10 best high-end laptops

    From lightweight and zippy devices to gaming beasts, we test the latest in top-spec portable computers
    Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

    Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

    The batsman has grown disillusioned after England’s Ashes debacle and allegations linking him to the Pietersen affair
    Susie Wolff: A driving force in battle for equality behind the wheel

    Susie Wolff: A driving force in battle for equality behind the wheel

    The Williams driver has had plenty of doubters, but hopes she will be judged by her ability in the cockpit
    Adam Gemili interview: 'No abs Adam' plans to muscle in on Usain Bolt's turf

    'No abs Adam' plans to muscle in on Usain Bolt's turf

    After a year touched by tragedy, Adam Gemili wants to become the sixth Briton to run a sub-10sec 100m
    Calls for a military mental health 'quality mark'

    Homeless Veterans campaign

    Expert calls for military mental health 'quality mark'
    Racton Man: Analysis shows famous skeleton was a 6ft Bronze Age superman

    Meet Racton Man

    Analysis shows famous skeleton was a 6ft Bronze Age superman
    Garden Bridge: St Paul’s adds to £175m project’s troubled waters

    Garden Bridge

    St Paul’s adds to £175m project’s troubled waters
    Stuff your own Christmas mouse ornament: An evening class in taxidermy with a festive feel

    Stuff your own Christmas mouse ornament

    An evening class in taxidermy with a festive feel
    Joint Enterprise: The legal doctrine which critics say has caused hundreds of miscarriages of justice

    Joint Enterprise

    The legal doctrine which critics say has caused hundreds of miscarriages of justice
    Freud and Eros: Love, Lust and Longing at the Freud Museum: Objects of Desire

    Freud and Eros

    Love, Lust and Longing at the Freud Museum