5 top tips for dealing with debt

With credit card debt escalating rapidly, we look at the five steps you should take if you're struggling to make ends meet.

Like most people on this site, I have a little bit of debt built up on a credit card. Nothing massive, and it's still on a 0% interest period, so nothing too worrying. But it's still a debt I'd rather not have.

I'm not unique in this - according to Credit Action, the average Brit owes around £4,700 on things like credit cards, personal loans and overdrafts. But while most of us have debts at levels that are relatively comfortable, there is an alarming growth in the number of Brits who really are over their heads in debt.

As a result, the banks are clearly not that confident about their ability to repay their debts. Recent figures from the Bank of England revealed banks wrote off £1.6bn worth of credit card debt in the third quarter of 2009.

That's double the figure from each of the two preceding quarters, a staggering jump. In fact, it's half of the figure for the whole of 2008!

So what does this mean?

Basically, it's an admission from the banks that they don't think they will ever see the money a number of us owe on our credit cards. They think that certain card holders are so in debt that they will never be able to repay their card debt, and so have completely given up on getting any of it.

While that's probably something of a relief for the borrowers concerned, if you owe so much on your credit card that you won't pay it off - ever - then chances are, your problems run an awful lot deeper.

So what should you do if you are getting to the point where your debt is difficult to cope with?

1) Get talking

The first thing you should do is speak to the companies you owe money to.

Explain your situation, and why you are struggling to meet the repayments. Thanks to the credit crunch, these firms will likely have whole departments set up to deal with clients with debt problems, such is the size of the problem. And they may be in a position to offer you a revised repayment schedule, easing your monthly burden, or even wipe out the debt entirely in extreme cases.

2) Get advice

The banks are not the only ones you should be speaking to - there's loads of great places you can get fantastic advice on how to deal with your debts (and the firms you owe the money to).

Citizens Advice is the obvious place to start, though you should also check out organisations like the Consumer Credit Counselling Service, The National Debtline and Advice UK.

The most important aspect about each of these advice centres is that they are absolutely free - they won't charge you a penny for their help, and are able to discuss not just simple things like budgeting tips, but also your options should you need to go for an IVA or file for bankruptcy.

They'll also likely clear up the many debt myths that you may be concerned about.

There are plenty of outfits that charge you for this sort of help, and while I've got no doubt some do a good job, there's really no point paying for it if you can get that advice and guidance for free! And don't forget, if you're registered on lovemoney.com, you can follow our brand new dealing with debt blog, written by debt charity the CCCS, every week on Thursdays.

3) Sort out your budgets

While talking to your bank may help, in the long run it's the changes to your spending habits that will make the real difference, and ensure you never again end up in such an indebted position.

 I know this sounds like the most boring thing in the world - it's certainly a contender for that coveted award  - but it really can make a huge difference. Sign up for our brand new online banking service here at lovemoney.com, and you'll be able to track and categorise all your transactions from different accounts with a single login, making it much easier to figure out what you're spending too much on every month.

There are plenty of tips on how to manage on a small budget in our goal, which might also help.

4) Clean up your credit record

If you are falling behind on your repayments, whether they are for your mortgage, credit card, or even just your mobile phone, your credit record can quickly become a real mess. And that really is a big deal, because - particularly in the current climate - any black marks on your credit rating will likely see you rejected for the very products which will make getting out of debt that much easier.

If you want to check your credit record, you can get a free trial with Experian from lovemoney.com.

There are a number of very simple things you should do to protect your credit rating, from avoiding applying for a number of credit cards at the same time, to ensuring you are on the electoral roll. For a full guide on keeping your credit record ship shape, be sure to have a read of Protect your credit record.

5) Get the right financial products

If you are struggling with your debts, but your credit rating isn't too bad, getting the right financial products can help you get back in the black much quicker.

If you have a lot of debt built up on your credit cards, you should look to get hold of a balance transfer card which offers a long period of 0% interest, or at least a very low interest rate for the lifetime of the card. For the best balance transfer cards around, be sure to read 12 brilliant balance transfer cards for 2010.

It also helps to have a current account that won't charge you through the nose for going overdrawn. The best account around for this, in my view, is the Alliance & Leicester Premier current account, with 0% interest on overdrafts up to £2,000 for 12 months. You'll even get £100 cashback for opening the account which might come in handy!

Don't bury your head in the sand!

However, the one thing you absolutely must do is acknowledge your problems. Burying your head in the sand, and pretending your debt will resolve itself, is a really dangerous move and will end up costing you far more in the long run.

It's only once you accept that you have an issue that you can begin to resolve it.

Get help from lovemoney.com

If you're trying to get your finances back in shape, there's plenty of ways lovemoney.com can help.

First off, try some of the hints and tips in this great goal: Lower your household bills

Next, have a watch of this video: Cut your car insurance costs

And finally, if you have any questions that need answering, why not pick the brains of your fellow lovemoney.com users in our Q&A section?

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