Debts & Loans

Christmas bills will now be dropping through the letter box, but for many people the prospect of how they're going to cover the cost of their spending will be filling them with dread.

The extent of the problem will vary. Some will just need a couple of lean months to get them back on the straight and narrow; others will have suddenly found themselves propelled into financial uncertainty as a result of redundancy. And some will have piled more debt on top of existing borrowing and be trying to juggle everything and keep their head above water.

Regardless of the severity of your situation there are steps you can take to help get your finances back on track. Here are our top 10 tips:

Prioritise

For many, simple financial planning could help them regain control of their finances. Work out which debts you need to prioritise - such as mortgage repayments - and those that are less of a priority. Some of the non priority debts you may even be able to eliminate altogether - such as by cancelling a gym membership or magazine subscription.

Budget

Cut back on expenditures you don't need to make and see if there are ways to boost your income such as by selling unwanted items on eBay, taking on an extra job or taking advantage of any benefits available to you. Check out Clare Francis' article 'Change your daily spending habits and save £100s' for tips on reducing your spending.
Shop around

Make sure you're getting the best deal available on products such as insurance, mobile phones and broadband. For example are you paying over the odds for a broadband package that includes high speeds and unlimited downloads even though you rarely use the internet? Or are you paying for inclusive minutes and texts on a mobile phone contract that you never get close to using? If so, it's time to evaluate your deals and switch to better value products.
Pay back a little extra

If you are currently only repaying the minimum on your credit cards each month is there any way you can afford to increase your payments? Paying back even just a small amount more each month can make a massive difference to your debt - slashing the interest you repay and reducing the length of time you remain in debt. For example if you had an outstanding balance of £2,000 on a store card with a rate of 25% and were making monthly repayments of £50 it would take you approximately nine years to clear the debt in full. However, by paying just an extra £3 a month you could slash two years off the time it takes to repay the debt.

Move to a 0% balance transfer card

If you have debts on a store or credit card that are less than £6,000 move them to a 0% balance transfer card or at least a low rate card to help you pay off the debt with a little breathing space. For more information on this check out Peter Harrison's article 'Act now if you want a balance transfer card'.
Consolidate your debts

If your debts total more than £7,000 you could be better off consolidating with an unsecured loan to avoid high interest rates on credit and store cards. For example, if you moved a £7,000 debt to the Sainsbury's Personal Loan at 8.1% over five years your payments would be just £142.39 a month, and you'd repay a total of £8,543.40 over the term of the loan.

This product is only available to those with excellent credit scores. If your credit score isn't perfect or you are looking to borrow more than £10,000 a secured loan may be a better option. The Platinum Loan, available exclusively through moneysupermarket.com is available to those looking to borrow between £10,000 and £100,000. Rates start from 7.8%, although the typical annual percentage rate, which must be offered to at least 66% of successful applicants, is 11.4%.

Contact your creditors

Many are facing much steeper debts than normal this year perhaps because they or a partner has lost their job. If that's you and you can't afford to pay all your monthly bills, get in touch with your creditors as they may be able to accept lower monthly payments. With more and more people in financial strife, creditors realise that they have to be more co-operative than in the past.
Seek independent advice

Impartial advice is available from charities such as Citizens Advice, the Consumer Credit Counselling Service and National Debtline - and they may even be able to help you negotiate lower payments with a creditor. Julie Griffiths from Citizens Advice has more information in our latest video 'Debt help from Citizens Advice'.

Consider a debt management plan

A debt management plan can be set up independently; with the help of one of the debt charities mentioned above or with a specialist debt advice agency such as Think Money or Debt Release Direct. If you choose to seek help from an adviser, he or she will negotiate with creditors on your behalf, and might be able to agree a plan that freezes any future interest being charged. Your adviser should help you reorganise your repayments into a monthly amount you can afford and get you back in control of your finances. Debt management plans will show up on your credit profile and can hurt your chances of gaining credit in the future. Also, if you choose to use the services of a debt agency, be aware that you will be charged a fee.
Set up an individual voluntary arrangement (IVA)

If your debts are out of hand and there is no obvious route to get them back under control, an IVA, or Trust Deed if you live in Scotland, can be a good option.  An IVA is an agreement between you and the county court to pay off debts, at a rate you can afford, over a determined period - usually five years - set up by an insolvency practitioner (IP). Once the agreed term comes to an end any outstanding debts are written off. IVAs shouldn't be entered into lightly however - while the prospect of a debt write-off may sound appealing there are ramifications, notably the negative impact it will have on your credit file. You will struggle to be accepted for new credit arrangements which may mean you can't get a mortgage or even a mobile phone contract, for years afterwards.