Three-step plan of action for debt problems

1. Personal Budget

It’s really important to understand your personal spending and your personal level of debt. A personal budget is an overview of how much money you spend every month, compared with how much you have coming in.

It’s not an exact science – sometimes incomes vary month to month, quarterly / annual bills obviously aren’t paid monthly, some people are paid weekly, etc. but a budget can still give you an overall picture of where you stand. This is a good first step towards working out what you’ll do about your finances if you have got debt problems.

2. Increase your disposable income

If your budget reveals that things are a little tight, or that you’re overspending, you could try cutting back on the ‘non-essentials’, like holidays, social activities, newspapers and magazines, visits to restaurants, takeaways, hair and beauty, electronics, hobbies, or any other discretionary spending.

Before a debt problem can get out of hand, it may be possible to reverse the situation with some careful budgeting and economising. This could increase the amount of money you have available for the most important commitments.

Of course, your finances could change for the better with a pay rise or bonus, overtime, a second job, a windfall, or by selling things that you don’t need any more, for example.

3. Debt advice

Often, before people go for debt advice, they have tried whatever they can to deal with their debt themselves. Having said that, you shouldn’t feel you have to struggle with your debt alone – getting debt advice could reveal a solution you hadn’t thought possible.

A debt management plan might help, for example. It’s an informal repayment plan you could agree with your lenders to repay your unsecured debt more slowly, reducing your monthly payments. Find out how to enter one – and whether it might be suitable for you – atwww.debtadvicenow.co.uk.

Making smaller payments to your lenders than originally agreed will have an effect on your credit record for six years. It might increase the amount of interest you pay overall, unless your lenders agree to freeze interest and charges on your debt management plan (which lenders often do).

If a debt management plan isn’t suitable, insolvency may be an option, although you should discuss this in depth with a debt adviser before you make any firm decisions.