Debts & Loans

When financial outgoings replace incomings at a quicker rate than you can manage, the only way to stop a downward spiral into the red is to plan effectively.

Citizens Advice has called for the self-help debt system to be completely revamped in its latest report, With A Little Help From My Friends.

The Citizens Advice Bureau (CAB) found nearly half of people surveyed for the report wanted to look after their own debt problems directly with creditors without third-party assistance from a body such as the CAB.

However, only one in five people had payment offers accepted by creditors.

The amount of differing information out there makes it confusing for debtors and so the CAB has called for a consistent set of guidelines for people to refer to.

A standard approach

Alex MacDermott, policy officer at CAB, says: 'There are lots of different places where you can get self-help and we are looking for a more standardised approach from both advice organisations and from creditors themselves.

'Being in debt is very disempowering. Giving people the knowledge and support to regain control is very positive and helps them avoid debt in the future so we need to be collaborative.'

Waiting for a new self-help formula to be introduced could take any length of time and you might need to take action sooner rather than later.

'Make sure you have paid the essentials first such as the mortgage, rent, gas, electricity and food for the family,' adds MacDermott.

'Whatever is left over should be spread out on an equal basis so whoever is owed the most gets the bigger fraction of repayments.

'Be prepared to stick to your guns and treat all the creditors fairly. If you are not treated fairly you can turn to debt associations and a financial ombudsman; know your rights and be confident.'

Take-home pay growth has fallen to its lowest point since February at 3.4 per cent in October, according to payments group VocaLink, so people really need to get to know their finances.

You don't have to be an accountant to know what your money pays for, who it goes to and where you think you can cut back. The moment you set a cash limit in one area of your life, the more likely you are to stay within those boundaries.

Advice and support

When it comes to sorting your debt, advice and organisation is part of the solution.

Beccy Wilks of the Money Advice Trust says: 'Even if you are going it alone you still need advice and support from debt management organisations and consumer credit counselling services.

'It is also important for you to have a budget sheet; if a lender thinks your outgoings are too high for a family of your size they will reject your offer.

'You can fill out sample budget sheets on websites such as the www.nationaldebtline.co.uk or from Citizens Advice and sample letters to send to creditors are also available.'

You have to be honest about exactly where you spend money in fine detail if you want to reduce debts and if you want creditors to take you seriously.

Wilks says: 'You need to be realistic with your figures and it's about prioritising your debts. Until you sit down and fill out a budget sheet, you won't have a clear idea of where your money is going each month.

'Things like lunches at work are expenditures you wouldn't immediately factor into your budget but it is still something you pay out regularly. If you include those purchases it shows you where your money goes and gives lenders a snapshot of your debt and how much you can afford to repay.

'You might find you have a mixed response but if your figures are realistic when you make an offer to your lender, there is no point in them paying for a County Court Judgement against you just to get the same amount in the long run.'