Debt Consolidation - Is it the Answer?

If you are worried about your debts, try not to panic... but do not ignore the problem. You need to face up to the problem and deal with it. Try to talk with the people you owe money to and let them know that you are having problems. Most organisations will be more helpful if you take the intiative and approach them first. Sorting out your debts is not easy, despite offers of loans to "pay off your debts".

If you have more than one debt outstanding, or if you have fallen behind in paying your bills, you need to decide which are the priority cases. A priority debt is one that could have serious results if you did not pay. Failure to pay your rent or mortgage would leave you homeless, or not paying your gas or electricity bill could leave you being cut off . When you have decided which are priority debts, work out how much you can realistically afford to pay back. Bear in mind that interest rates on sore cards and credit cards can be extrememely high, so look to pay these off too.

You will need to think very carefully before taking out a further loan to pay off your existing existing debts. This is often called "debt consolidation". It can appear attractive, offfering a low headline rate and accepting loans for people with ccj's. However, you may end up paying back a lot more than you borrowed and what may initially appear as a low interest rate may end up being extremely high due to hidden charges or small print that you may not notice. Some debt consolidation loans can be secured against your home and you could end up losing it if you fail to make repayments. Remember that there are no easy solutions. Be wary of adverts that make it sound all-so-simple. Get impartial advice, for instance from the Citizens Advice Bureau, before signing up and make sure you read and understand the small print.

Check your income and see if there are any benefits or tax credits you are entitled to that you are not getting. Look carefully at your spending and see if there is anything you are able to cut down on, again you can work out what are priority expenses and what things are not so necessary. You can also look at ways of reducing your outgoings, for example you could shop around for a cheaper gas or electricity provider, or look at cheaper mortgage or insurance providers.

You do not need to pay for debt advice. Your Citizens Advice Bureau gives free, independent and confidential advice. They can help you work out a repayment scheme and negotiate with your creditors. For details of your local CAB click on nearest CAB .