Emma Lunn, Wednesday March 19, 2008
Record numbers of people are seeking help with their debts as the credit crunch continues to bite, according to a new survey from Citizens Advice. Make sure you don't become a victim with our debt-busting tips
Increasing numbers of people are seeking help because they are struggling to pay their essential household bills, according to new research from Citizens Advice.
Figures from the charity show that the number of people seeking help with mortgage arrears shot up by 35% in the first two months of 2008 compared with the same period in 2007. The research also shows continuing increases in problems relating to such basic essentials as gas and electricity, water, telephone and council tax debts.
And another recent survey from price comparison website Moneysupermarket.com has found that 84% of people currently have "significant" financial worries - with 30% of them not sure they can cope for much longer.
UK consumers owe more than £1.3 trillion on loans, credit cards and overdrafts - and while these debts are rising, the ability to cope with repayments is declining. The credit crunch could well make matters much worse - banks and building societies are already tightening their lending criteria and the cost of borrowing is increasing sharply.
Fortunately, there is action you can take. Here are six tips to get out of debt hell.
Assess the situation
Debt expert Tim Moss of moneysupermarket.com urges people to face up to their problems. "Anyone starting to worry about their financial situation shouldn't bury their head in the sand - problems are easier to tackle when addressed early," he says.
"People should start by gathering their paperwork and working out the true scale of their problems."
Work out how much you owe and to whom. If you're being pursued for payment by lenders, speak to them and explain you are having financial difficulties which you are addressing.
Set a budget
Your next step is to set a budget - and stick to it. Go through your bank statements and think about what you spend your money on. Do you really need to eat out quite so often? Could you spend less on going out or buying new clothes? Be ruthless and see where you could make savings.
Work out how much money you have coming in and identify your essential outgoings, such as your mortgage or rent, council tax and other bills. Non-essential items such as magazine subscriptions and gym memberships might have to be sacrificed.
Work out how much you have left to spend on day-to-day living and take this amount - but no more - out of the ATM every week and leave your cash cards at home.
Prioritise your repayments
Keeping a roof over your head should be your priority so make sure you pay your mortgage or rent before tackling any other debts. Tackle the most expensive debts first. Typically, these will be debts on any store cards or high interest credit cards. If you have any savings it might be worth using these to pay off any debts as soon as you can.
If you have a constant outstanding balance on credit or store cards, transfer these to a 0% interest credit card, cut your old cards up, and arrange standing orders to pay them off in monthly instalments.
Switch energy providers
If you've never switched energy suppliers then it could be time to shop around for a better deal. The cheapest tariffs tend to be dual fuel accounts managed online and paid by monthly direct debit.
Also look at what you pay for your home phone and mobile phone and see if there are cheaper deals available. Price comparison websites such as moneysupermarket.com can help you compare providers and arrange the switchover.
Switch and save on household bills
Look at your mortgage
If you're approaching the end of a fixed-rate mortgage deal and your (normally much higher) SVR (Standard Variable Rate) is looming, you should start thinking about remortgaging - preferably eight weeks in advance.
A broker will help find the best deal for you and help you thorough the application process. According to mortgage expert Katie Tucker at broker John Charcol, remortgaging to a better deal can save you more than £1,600 a year in interest payments. The credit crunch has made it harder to switch mortgages but you should still be able to find a deal that's far below your SVR.
Find the right mortgage for your needs
Find free help!
If you feel unable to sort out your money worries yourself, get some free independent advice from organisations such as Citizens Advice or the Consumer Credit Counselling Service (CCCS) who can help you work out payment plans for your debts and explain what options are available to you.
Citizens Advice policy director Teresa Perchard urges vigilance. "Make sure that you are claiming all the benefits you are entitled to. You may be missing out on money that could help offset your costs," she says.
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