Take action even if your wallet is empty

What to be careful of… The biggest thing to avoid is borrowing more money – it might be a quick fix but you’re ultimately losing a lot more cash and by doing so you’re keeping yourself inside a vicious circle of debt. IVAs You’ve probably seen the adverts on TV explaining the "little-known piece of government legislation" which can write off a lot of your debts. If you think about how much advertising on television costs, you’ll probably start to wonder how these companies are afford it. It’s because they make hundreds and thousands of pounds through their debt management products. A lot of the money you pay to these companies goes towards the payment of the company themselves, rather than paying off your debt.  In some circumstances, an IVA is the best option because it’s a way of avoiding bankruptcy and sometimes can help people keep their homes. If you anticipate that you might not be able to keep up the payments they set you then it’s not the answer for you – because high penalty charges will usually be incurred as a result. Only ever take out an IVA through the advice of a professional independent organisation such as the Consumer Credit Counselling Service, and never go to a company advertised on TV. Read more about what an IVA is and how it works in our article. Debt consolidation loans Like an IVA, you should only use this option - which involves combining all your existing debts into one big loan - if you’ve been advised to do so by a not-for-profit debt counsellor. If you can find a loan with a cheaper interest rate than you already have, which isn’t secured against your home, it might be worth considering. Once again, avoid the companies with TV ads – they’re only after your money and really aren’t there to help you at all. By taking out a consolidation loan, you’ll ultimately be paying out more money, even if it is a lesser amounts over a longer period of time.For more information about debt consolidation loans read our article.  Debt management companies First things first, any company that tells you their service is free is lying (unless they’re a charity). They will incorporate their fees into your payments, and any company that does tell you they won’t charge you should not be trusted. This option should only be used if you really have exhausted every other option possible – because they offer a costly service which you can get for free from a free debt advisory service. Look at our article about debt management companies for more info.

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• Start by facing up to the your debts - and find out how to ditch them
• Reduce the amount of interest you pay on your current debts
• Pare down your other costs as much as possible
• If things are really desperate, get free help

Every four minutes, Britain’s personal debt increases by £1m. Today alone, consumers will borrow an additional £330m. A third of all enquiries made to the Citizens Advice Bureau are directly related to debt – which equates to 6,600 new debt problems EVERY DAY.

The first important thing to know is that you are not alone; there are millions of people out there in exactly the same position. Lying awake worrying will not solve the problem, but neither will ignoring the issue and living in denial. It’s important to get a good balance of optimism about your situation, and motivation to do something about it.

Admitting that you need help can be the hardest part of getting out of debt. Talk to your friends and family and listen to their suggestions. It’s highly likely that you know someone who’s been through a situation involving debt and they might be able to give you some decent advice. Be willing to listen to other people, and set yourself targets to work towards. Be aware of the fact that all your problems won’t be solved overnight, and things might even get worse before they get better – but ultimately, your life will be of a much higher quality once it’s all over.

Step 1: Get a plan

A plan is essential in the breakdown of your debt. This might take up a real wedge of your time but without it – you’re going to get nowhere whatsoever.

Draw up a list of all your monthly incoming payments like your wages, investments, benefits, alimony etc. If some of the amounts vary every month then work out what the worst case scenario would be – i.e. the lowest possible amount of money coming in.

Next, make a list of all your monthly outgoing payments. If you aren’t really honest with yourself here then it isn’t going to work. You need to include rent/mortgage payments, credit card payments (taking interest into account), utility bills and council tax bills, mobile/landline phone bills, food bills, travel costs, entertainment/clothing allowance, investments, magazine subscriptions, gym memberships and anything else that you can think of which you pay out on a regular basis, making sure to work out the highest possible outgoing payment scenario. If you can’t work out how much you spend a month on things like food and clothes – then keep a spending diary. Make a note of everything you buy for a few weeks, this might even shock you into seriously cutting back.

At this point, don’t worry if your monthly outgoing payments exceed the incoming – it’s what you should expect.

Your next step is to divide your outgoing payments section into two – "flexible" and "not flexible".

The "not flexible" column should include payments which are not at all adjustable, and are vital to the running of your home such as your mortgage or rent (although negotiations on mortgages for a payment break can sometimes be made) council tax, TV licence and any child support payments.

The "flexible" column should include all payments which you can cut back on, or withhold for a short period of time. This includes utility bills which can be cut back, food, clothes and entertainment bills, travel etc. Another expense which can be cut back is the money paid out to banks, credit card companies and loan companies. These do need to be paid – but they are a lot less important than your mortgage payments and council tax etc. Contrary to popular belief, these companies don’t have many rights unless the loan is secured against your property and bailiffs in particular have very little power. However, do not be misled into thinking you can ignore these debts – it simply means that you need to prioritise which payments need to go out.

Step 2: Cut the cost of your borrowing

Borrowing more money to pay off your debts is a slippery slope – don't go there. But you do need to check that your existing borrowing is from the best deals you can get – that way you pay less interest, and can shift your debts faster.

Credit cards – If you’ve been borrowing on credit cards or store cards, you can cut back on your monthly interest by transferring the balance to a card with lower interest rates. If you can find a credit card with a deal such as 0% interest for the first few months then it might be worth transferring your balance for the interest-free period to give yourself an interest payment break. Meanwhile you can concentrate on slowly repaying the actual balance.

 Check our our article on the best 0% credit cards for more info and the current best deals. We also have a handy independent comparison table to help you work out the best deal for you. 

Loans – A personal loan is usually the next cheapest way to borrow money, after the best credit card deals. You have to make regular repayments over a fixed amount of time – see our unsecured loans comparison table to check out the deals available. We usually advise against taking out a secured loan – which leaves you at risk of losing your house – although it may be worth looking at if you absolutely trust yourself to make the repayments (this is really, really important!). See our article on unsecured and secured loans before making any decisions.

Mortgage – How long have you had your mortgage? If the fixed-rate or introductory period has expired, the chances are you're shelling out far more than you need to. As mortgage payments are likely to be your single biggest expense, it's definitely worth keeping on top of it.

Before you try to re-mortgage it’s a good idea to contact your existing lender to make them aware of the fact you’re considering making a switch. They might even offer you cheaper rates there and then if you’re lucky, but most importantly, check whether you will be charged an exit fee if you move your mortgage.

It's then a case of tracking down the cheapest deal you can get - start by looking at our independent comparison table.  Remember to take into account any exit fees from your old lender, and entry fees for your new lender, to get the true amount you will pay or save by switching.

It may seem tempting to get a bigger mortgage, and use some of the cash to pay of your existing debts. Beware, though - this is not a decision to be taken likely and should only be carried out if it’s ultimately going to save you money. Remember that adding all your unsecured debts (credit cards/loans etc) to your mortgage increases the risk of losing your home because of the amount your loan increases by. Read out article about re-mortgaging your home to pay off your debts to help you make a better informed decision.

Step 3: Cut your other costs

Go back to you plan (Step One). Once you have your flexible column sorted – sit down and brainstorm every possible idea for cutting down on every detail on the list. Use advice from friends and family, information on our website (there are loads!) and original ideas that you come up with yourself. Use our comparison table to switch your energy provider or go to the Which? magazine comparison site and potentially save hundreds a year. Buy supermarket own-brand products rather than brand names, hunt down bargains in charity shops and sales and set limits for spending on a night out. You could even ditch the car and cycle to work – or even taking the bus is likely to work out at a lesser cost. Whatever you can do to cut back – write it into your plan and stick to it. Be proactive in your decisions and try not to leave it till tomorrow, otherwise your plan might turn into the diet that you’ve been starting every Monday for the past six years.

Have a look at out article on cutting your costs to start paring away the essentials.

When you have all the costs worked out you should have a rough idea of how much money you’ve untied every month. By prioritising payments you will be able to see which lenders you are most likely to have trouble repaying, and if there are any payments you can’t possibly pay at the moment.

Step 4: Speak to your creditors

If you're still struggling to make your repayments, the worst thing you can do is stick your head in the sand. Believe it or not; most lenders don’t want to see you in debt. Reclaiming property and possessions is really costly, as is going through the courts - so most creditors will use these options as very last resorts. Rather than hiding away from your debts – give everyone you owe money to a call and explain your situation. Give them details of your plan to cut back so they know that you’re doing all you can to pay them. Some banks and loan providers can be sympathetic in particular circumstances and in some cases can offer a short payment holiday until you’re back on your feet. Nothing bad can come from calling them to make them aware of your situation – bad things can happen when you ignore what’s happening.

If you’re one of those people that truly hates confrontation, and you can’t bare the thought of having to talk it through with your creditors; then providing you have serious debts the CAB or CCCS with speak with your creditors on your behalf.

If things are really desperate: get free advice

Because of the severe debt problem we have in this country, there is an increasing number of organisations dedicated to helping people get out of debt. All of these organisations are really busy all the time because of the high volume of people requesting help; but if you are really struggling with your debt, it’s well worth persevering and either waiting on hold or getting up early for an appointment because these people have the best experience in solving debt problems. Click here for contact details for some of these organisations.

 BEWARE: Companies advertising debt solutions in the form of IVAs, debt consolidation, debt management and bankruptcy practitioners are NOT free advice organisations, they are trying to make money from you. If you’re in any doubt then check if the organisation is a registered charity, as any authentic advice line will be.

Step 5: Get a debt-busting buddy

You’ll be surprised at how many people you know are in some form of debt or financial trouble. Ask a friend to help you work out your plan, cry on their shoulder and offer the same service in return, share tips on saving money and text each other money saving deals whenever you’re out and about. Having someone to support you is really important; there is a strong link between debt and depression and having someone around to help you can be a real life-saver. Set up money-making schemes together and set yourselves targets each month. Don’t panic when sometimes you don’t achieve them, it’s a slow process and there’s always next month to start over.

Step 6: Increase your income

It’s a lot easier than it sounds. There are a million things you can do on top of your full-time job which can help boost your income, and most of them are really enjoyable too. Think about what skills you have, or something you enjoy doing – then think about how you can turn it into a money making opportunity. Check out our section of the site devoted to making money. If you’re an expert knitter then why not try selling your hats, scarves and gloves on eBay or at a local car boot? Rent out a room in your house, or your garden as an allotment; or even ask all your neighbours if they want you to walk their dogs for a small fee! If you can’t think of anything you like or are good at then why not see if your local supermarket are hiring evening workers – or a nearby restaurant or pub. There’s no shame in doing everything you can to get yourself out of the debt-trap and you never know what kind of interesting people you’ll meet along the way!

If your household earns under a certain amount you may be entitled to benefits or tax credits – particularly if you have children. Even if you don’t think you’re eligible it’s worth taking a look on entitledto.co.uk - a free benefits calculator to work out if you should be getting any extra money from the government. If you want professional advice about what you’re entitled to then you can pop into your local job centre and they’ll tell you what you need to know.

See our article on getting richer in half a day for more ideas on maximising your income.

Step 7: Open your bills and bank statements and keep them organised

It’s not that scary! Banks and lenders get away will murder sometimes, just because people don’t dare open their bills. Sort out a filing system and organise all your bills and statements. If there are any mistakes then call up the company and rectify them as soon as possible. Cancel any direct debits and standing orders that you’re paying for items and services you no longer use. You’d be surprised at how much you can save by doing this.

Once you have a filing system in place, it will make keeping on top of your finances much easier. This way, you won’t be able to pretend you’ve forgotten a bill – because you have to stick to the system to keep everything afloat. A simple system such as organising paperwork into "paid bills", "unpaid bills", "bank statements" and "income" could work wonders for you.

And finally... escape from the credit trap

Remember, whatever you do, don’t borrow more money to pay off your debts. By doing this – you dig yourself deeper and deeper and interest will keep rising until you’re way over your head. There are no benefits to paying off debts with credit cards and more loans at all. Next time you see the word "credit" – mentally replace it with the word debt. Because that’s all credit is, another way of saying debt – and even "interest-free debt" doesn’t sound so appealing when you word it truthfully.

What next?

Have a read through some of our popular articles to search for more ways to beat your debt demons. Start with these:

• The best 0% credit cards
• Re-mortgaging your home to pay off debts (don't!)
• IVAs
• Debt management
• Bankruptcy practitioners
• Seven quick ways to get out of debt

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