THE PROBLEM OF DEBT

Being in debt is a fact of life. The vast majority of us have debts, whether it be mortgage, credit card, bank loan, hire purchase, or any of the other variations.

The fact that we have debts is not a problem - in fact the controlled use of debt provides the opportunity to even out spending over the course of our lives and give us a higher standard of living than if we didn't have access to debt.

But where it can go all wrong is when we face difficulties in repaying debt. Missing payments, paying the smallest amount possible on credit cards, using one credit facility to pay another, seeing the bank overdraft increase month by month. All of these are signs that debt is starting to become a problem.

What should I do if I have debt problems?

• Don't ignore it.

  If you are facing financial difficulty then the important thing is not to ignore the problem. It can seem tempting to stuff bills and threatening letters unopened into a drawer but they won't go away.

  The longer you leave the problem the more interest and other charges you will incur and the more likely you will face legal action.

  As hard as it may seem, the first thing you must do is talk to the people you owe money to - don't just stop payments without explaining why. They can sometimes be more understanding than you'd expect.

• Prioritise

  The next thing to do is to work out which debts are your priorities - mortgage, rent, council tax, child maintenance, utilities - and pay them first. Don't fall into the trap of paying whoever shouts loudest first.

  Work out a budget that covers all your income and essential out goings. Only offer to pay off debts at a rate you can keep up - it is easy to be panicked into offering more than you can afford.

• Beware of a quick fix

  A classic response to debt problems is to borrow more money to pay off the debt. This is rarely the best option. If you are having financial problems, you should at least investigate ways to deal with your difficulties without borrowing more.

  Be particularly wary of companies that offer to lend you money to 'solve' your debt problems, especially if they want you to take out a second mortgage or a high interest loan.

• Get advice

  There are lots of places where you can get free help and advice. The Citizens Advice Bureaux has outlets all over the country and many years of experience helping with debt problems and negotiating with creditors.

  Other advice agencies also provide free help and assistance. Some commercial companies that advertise in the newspapers and on television also offer advice but you will have to pay for their help.

What happens if I am threatened with legal action?

First of all, don't panic. The courts try hard to distinguish between those people who can't pay and those who won't pay. If you are facing genuine difficulty then you will normally be allowed to repay your debts at a rate that you can afford.

The debts will still have to be repaid of course but the important thing is that you tell the court about your situation.

Any other tips?

If your difficulties are caused by a reduction in income, check whether you are entitled to any help through social security benefits or tax credits.

Many people miss out on additional income just because they don't check their entitlement when their circumstances change. Then, make a list of all of your spending and look critically through it to see where you can make savings.