The first steps to facing up to your debt

With the recession still biting and cutbacks in public spending on the way, getting your finances back on track should be a priority for 2011.

Although it’s easy, becoming an ostrich and burying your head in the sand over debt will only make it worse. How many of us leave bills and statements unopened, stuffed in a drawer, in the hope that they will take care of themselves?

It’s quite common to feel overwhelmed and unable to deal with debt problems, but we know that hiding the bills won’t help the situation.

With the recession still biting and cutbacks in public spending on the way, getting your finances back on track should be a priority for 2011.

Ignore your debts and they will just keep on growing and multiplying. When you finally decide to sort them out, you could find that they have spiralled out of control without you even realising.

Priority debts

If your debts include secured loans, such as a mortgage on your home, then it could be serious.

Repossession proceedings could leave you homeless. You may get offers of loans from creditors to assist you, but there will be a cost to pay in additional fees and interest charges and it can sometimes make the situation worse.

Admitting that you have a debt problem and trying to sort it out can be tough, but in the long run it is the best and only solution.

Communication is the key

By seeking the help and advice of professionals, you may find that your problems are not as bad as you thought and at least the burden will be shared. Remember the saying that a problem shared is a problem halved!

One of the most important things to remember when you are struggling to meet repayments on your debts is to contact the creditor and explain the situation.

By making them aware you are more likely to come to an agreement to make reduced payments until your circumstances improve. The sooner you let them know, the better.

First step

The first thing you should do is put together a budget showing all income and expenditure. This should detail where your money is being spent and whether there is any surplus after paying your priority bills.

Secondly, you need to find out how much you owe and who to. This credit explained booklet gives information on how to obtain your credit file. (You can also get a free credit report from Experian – just remember to cancel your membership before the 30-day trial period is up, to avoid being charged in the future.)

Obviously, any friends or family that you owe to won’t be included on there so don’t forget about them (research by More Than has revealed that the total amount of unpaid debt between family and friends stands at £44.6bn, with 32% of people saying this has caused rifts which may never be repaired).

You’re not alone

You’re definitely not alone if you’re struggling and looking for help with your debts.

For example, Credit Action reports that the average amount of debt owed by every UK adult, including mortgages, is £29,833 (which, if nothing else, demonstrates the huge levels of debt that exist in the UK). What’s more, the CCCS receives an average of 25,000 calls from financially distressed people every month. Personal debt is endemic in the UK.

There’s always a solution

Often people think that bankruptcy is their only option but there are several solutions available to deal with debt problems. A Debt Management Plan (DMP) is one way of dealing with debts, where you make one monthly payment through a third party that manages all of your creditors. For example CCCS currently administers over 100,000 DMPs completely free of charge.

However, there are many more people in unrecorded DMPs which are not included in statistics. According to estimates by R3 this could amount to 500,000 people, which is more than double the number in formal insolvency procedures such as bankruptcy.

Free debt help

If you are in financial trouble and feel you need extra help and support, there are many companies offering help and advice. There are plenty of free advice agencies so you should never have to pay for debt advice.

It makes sense to seek advice from a non fee-charger so that any spare money is going towards clearing your debts faster.

At CCCS there is no charge whatsoever for the services we provide to our clients. To get free and impartial advice, visit our online counselling service Debt Remedy or give us a ring. We can help you make that first step; you just need to take your head out of the sand.