Top tips help you avoid the debt trap

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British consumers owe more today than they ever have before. As credit becomes more easily available, the number of people experiencing debt problems is rising. In this article we advise you on what you can do if you are struggling to keep up with repayments.

British consumers owe more than £1,004,290,000,000 on credit cards, mortgages and loans, and this figure is rising. This represents a staggering £17,000 of debt for every man, woman and child in the UK.

Not surprisingly, the number of people struggling to service their debts is on the up. There are a number of reasons why people experience debt problems, including poor money management, loss of employment or family problems.

If you are struggling to keep up with repayments on your debts, there is help at hand. Britain’s largest debt counselling agency, the Consumer Credit Counselling Service (CCCS), offers free, independent advice to consumers who are experiencing debt problems. This year, it is expecting to help about half a million people to get out of debt.

“The most important thing is to make a budget and stick to it. In general, if your payments of unsecured loans are anywhere above 20% of your monthly outgoings you could be facing a serious debt problem,” says CCCS spokesman, James Ketchell.

“In this situation we would advise people to go to a free, independent organisation such as ours for specialist help. The most important thing is not to panic. Don’t stick your head in the sand and try to ignore the problem, or borrow your way out of the problem. Remember that there are a lot of people in similar situations.”

The CCCS is just one of hundreds of debt counselling services in Britain today.

Usually, the first step in the debt counselling process is the drawing up of a debt management plan (DMP). This involves making a full list of your incomings and outgoings to calculate how much you can afford to repay each month. If you are unable to keep up with repayments, then the debt counselling agency will help you negotiate with creditors to agree a solution, such as reduced payments over a longer term.

Some banks and credit card companies will reduce, or even waive, interest rates if you show that you are following a DMP.

In more serious situations, the debt counselling agency may offer to help you set up an IVA (Individual Voluntary Arrangement). Basically, this is a legally binding agreement to pay off your debts with interest frozen and a significant amount of the debt written off.

Whether you just need some budgeting advice or need help with a more serious debt problem, a doubt counselling agency should be able to help you. When it comes to choosing an agency, James Ketchell gives this advice: “We don’t advise that you go to a commercial provider for help because you are paying for a service that you can get for free elsewhere.”

While debt advice agencies offer an invaluable service, to avoid and solve debt problems you have to learn how to budget properly. With credit so easily available today, it takes willpower to spend within your means.

Also, have a look at some ways that you can save some money. Here are few tips:

  • Sell your old stuff. If you don’t use it, sell it. Most likely, there’s somebody on eBay who will buy it.
  • Join the loyalty card scheme at your supermarket. This will help reduce your shopping bills.
  • Save money on your utilities. Try energy saving lightbulbs and see what cheap/free telephony services are available on the internet.
  • Shop around. Look for cheaper insurance, a better mortgage, or a cheaper gas company. Make sure you are getting the best value for money.
  • Shop at the supermarket rather than the local grocery store as it will be much cheaper.

It is also worth your while to make it as convenient as possible to pay off your debts. Set up direct debits where you can or pay bills online. Also, to help manage your funds, open separate bank accounts for debt repayments, living costs and savings. Allocate the appropriate funds to these accounts as soon as you get paid each month.

If you are facing debt problems, there is no need to go it alone. Seek the advice of a good debt counselling agency to get you back on your feet.

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