Debt Basics

Getting into debt is always easier than getting out. Credit card companies push their products, retailers encourage shoppers to take out store cards and banks continually mailshot their customers with loan offers - all involving repayment at a healthy annual percentage rate.

People find themselves in financial difficulty for any number of reasons - unemployment, illness, marital breakdown or other unforeseen circumstances. The key to solving the financial difficulty is communication - talking to creditors is an absolute must. It is no good throwing away their letters, if you don't write back the bailiffs will eventually come knocking on the door.

But it's not all bad news. Here's a three-pronged strategy for getting back in control:

1. Negotiate. In most cases, where debtors show willing, creditors are willing to come to an accommodation. If you contact your creditors to set up a repayment plan, it shows you are serious about tackling your problems. Negotiate with your creditors - most would prefer to receive small regular payments than nothing at all. But don't make promises you can't keep.
2. Cut back. The next step is to cut out all unnecessary expenditure. You may think you have already done so, but high interest payments on credit cards are something you may not have tackled. Many credit card providers will offer zero interest on transferred balances for up to six months - it is a way of deferring problems and getting some breathing space. Just don't forget what happens after six months when the rate goes up - and don't be tempted to add a bit to the debt by going shopping!
3. Budget. The third step is to work out income and outgoings carefully. If you can make changes to your way of life and save some money, do so. Use that money to pay back debts and in the meantime you should stop adding to your borrowing by surviving only on cash or debit cards

Finally, it is inadvisable to take out new loans to pay off old ones. So-called consolidation loans are often offered at very high interest rates, quite often all they do is saddle people with new debts they can ill afford.