Debt problems can occur suddenly with the loss of an income or an unexpected expense, or they might happen slowly by spending more than you are earning. You might have borrowed money from a number of credit sources and may be concerned about repaying this debt.

If you notice that your bank balance is tending to decrease over time then you need to take action

The following may be helpful in dealing with debt problems.

You need to establish your monthly income and outgoings. If you are paid weekly then the same thing can be done on a weekly basis.

Most of the information you will need will be available from a bank statement.

If you are married or in a relationship where your finances are interlinked, it may be simpler if you look at each individuals income and commitments.

Income

Make a note of your monthly take home income. Now add any second income, investment income, benefits etc. You should now have your total monthly income.

Outgoings

Now list your credit commitments. Include any mortgages, loans, credit cards, credit facilities, store cards and shopping catalogues.

Note down your typical monthly spend on shopping and living expenses. Large one off purchase such as purchase of a washing machine or car will distort this analysis so do not include these items - you do not buy a washing machine every week!

A good percentage of your expenditure will be weekly expenditure. A month is a period a little over 4 weeks; if you wish to compensate; take the 4 week total, multiply by 13 and divide the result by 12. The answer should be a little higher than the 4 weekly figure.

Finally list any other commitments that you are responsible for, these could be bills, council tax, insurance, school fees, investments

You should now have a total figure for outgoings.

Ideally the income should exceed the outgoings, hopefully by a sizeable margin. If the income does not exceed the outgoings you must take action.

  Dealing with debt

You have identified that there is a problem, now you need to establish how to overcome this.

Think carefully before you stop paying any of your credit commitments.

If you stop paying your credit commitments your credit history will show future creditors that you have had credit problems.

Your credit history is maintained by credit reference agencies. Loan or credit card companies will contact these credit agencies before they lend you any money.

The information is quite detailed and will show the creditor company whether you have missed any payments or had any County Court judgements or default notices registered against you

Lenders will charge you higher interest rates if they regard you as a higher risk.

Consider the following:

1. Can you increase your income (by working overtime/second job?)
2. Are all of your outgoings necessary
3. Are you paying too much to your mortgage lender
4. Is debt consolidation an option

In many situations it will be difficult to increase your income and there is a limit to how much you can save on household items.

Your mortgage may be your single largest outgoing. Are you paying too much to your mortgage lender. Contact  Mortgages Direct to see if there is a better deal for your situation.

Debt consolidation can reveal a significant saving.

Consolidation of debt involves paying off several smaller items of credit with one larger loan. Substantial savings can be made if the interest rate is lower and the payment period is longer.

Consider the following example:

Mr Smith has a mortgage of £100,000 on a repayment basis over 20 years. His mortgage is with a high street bank and is on a variable rate having been discounted one year prior.

Mr Smith has recently bought a car for £10,000 using car finance offered by the garage. The interest rate offered is 9.9% and the loan is paid over a 5 year period.

He has accrued £4,000 on his visa card, the provider is charging 18.9% interest on the outstanding balance

Mr Smith's monthly outgoings are:

Mortgage         £801

Car Loan          £219

Credit cards      £120 

total               £1140

By consolidating all three items into one mortgage for £114,000 paid over 25 years at a market interest rate of 6% (say) the monthly payment is reduced to £743, a saving of £397.

Mr Smith is now paying off his mortgage over a longer period, and it is a fact that over 25 years he will pay more interest back to the mortgage lender. However if this strategy enables Mr Smith to balance his income against his expenditure then this is an option worth considering

Please note that debt consolidation is only an option for people who are either employed or self employed.

If none of the above suggestions are options for you then you should consider contacting each of your creditors. The objective of this call is to reduce your monthly payment down to something you can afford.

Prioritize how you spend your money. You do not want to be made homeless so you must try to maintain your rent or mortgage payments. Benefits agencies may be able to help with some financial support.

Organisations exist to provide information and advice. Try the citizens advice bureau

  Unemployment

If you are in the unfortunate position of losing your job then this will be a stressful time

Your priority must be to get back into work as soon as you can.

You will need to look at your income and outgoings and try to make ends meet during this interim period. Some help will be available from the Job Centre

Debt consolidation is unlikely to be a solution for the unemployed as lenders will be reluctant to lend if you do not have the means to repay

  Further advice

National Debtline is a national telephone helpline for people with debt problems in England, Scotland and Wales. The service is free, confidential and independent.