Get out of Debt

More and more Britons have a level of debt that they are unable to repay. The Times has come up with 10 top ways to get out of debt...

1. Acknowledge that you have a problem

Add up your all your borrowings and all your assets to get a clear picture of your financial state. The Consumer Credit Counselling Service (www.cccs.co.uk) has an online tool to help you assess your debts.

3. Don't just pay whoever shouts loudest

Prioritise your debts. Your mortgage and debts secured on your property should be a priority as you risk losing your home if you default on these loans. Also pay off the debts that are accruing the highest rate of interest.

4. Seek free, informed advice

Obtain expert help from someone who is not trying to relieve you of even more money. You can consult debt advisers from organisations such as Citizens Advice and adviceUK. Debtors can call the National Debtline helpline on 0808 8084000.

5. Beware of commercial debt companies

Debt management and loan consolidation companies may exploit customers with expensive fees and charges. Not all these companies are sharks but they are in the business of making money! Read the small print, get impartial advice and don't get fooled by attractive headlines.

6. Do not rule out going to the wall

You may not believe that the stigma of bankruptcy has gone, but it has become easier to go bust. The period over which a bankrupt can discharge debts was cut in 2007 from three years to one. Going bankrupt can mean losing your house and any vehicles you own, so it should not be taken lightly. It may also affect your chances of employment. There are severe penalties for those who have run up debts in a profligate manner and see bankruptcy as a mere formality.

7. Beware of firms offering an alternative to bankruptcy

There has been a 70 per cent year-on-year rise in the number of people signing up to individual voluntary arrangements (IVAs). However, an IVA, a legally binding agreement in which an insolvency practitioner formulates a five-year repayment plan with a debtor’s creditors. It suits only a small minority of debtors. The schemes typically levy fees of up to £7,000.

8.Discipline is crucial

Some high street banks are encouraging customers who are suffering repayment difficulties to enter into agreements that consolidate all their borrowings into one loan. This can be a solution, but only if you stop spending.

9. Take a close look at free ways to escape debt

Free debt management plans can be set up by Payplan (0800 0854298) and the Consumer Credit Counselling Service. They will organise monthly payments on your behalf and help you to negotiate with banks and credit card firms.

10. Stop using shopping as a form of therapy!

If your idea of stress relief is a spending spree with your flexible friend, find another hobby. Again this may require discipline and you may need help. Above all - Stop spending money that you haven't got!