Sorting out borrowing problems

Are you in trouble over debt? Follow our step-by-step guide to sort out your finances.

The key to sorting out your borrowing problems is the three-step approach:

• Work out the scale of the problem;
• Draw up your budget; and
• Don't let matters slide - get help if you need it.

You might feel you need help with all of this, and there are many sources of free help and advice available. For more details of organisations who can help you see Useful contacts

1. Work out the scale of the problem

Make a list of all your borrowing - don't forget to include unpaid bills, loans from family and friends and money owed on credit cards.

Prioritise your debts. Think about which are priority debts and the most important to clear first. The list below gives a general guide to the order of priority, but it may not be appropriate in every case. This is not a complete list and you should seek further advice. You will need to think about your own particular circumstances, taking into account the severity of your debts, the steps already taken by the people you owe money to (your 'creditors'), the measures they can use to get their money back, and your ability to spread payments among your creditors. Most creditors will agree to a monthly repayment to their arrears before they take any action, so it is important to deal with these debts as quickly as possible.

• Mortgage (and other loans secured against your home) or rent
• Council tax
• Gas and electricity
• Water
• Tax or VAT arrears
• Business debts
• Hire purchase
• Magistrates' court fines
• TV licence
• Maintenance to support a former partner or children
• Loans from family and friends
• Social Fund Loans, benefit overpayments
• Unlicensed lenders
• Store cards, credit cards and personal loans

Ignoring any of these debts can have serious consequences.

2. Draw up your budget

Drawing up a realistic budget will help you work out how much you can afford to pay off each week or month to clear your debts. Online budget calculators, like those on the FSA and National Debtline websites, can help you do this. Talk to all the people you owe money to as soon as the problem starts. Suggest a plan to make whatever payments you can afford until your circumstances improve. Make sure you talk to all your creditors regarding your

• mortgage
• other secured loans
• rent
• household bills
• personal loans and credit cards
• bills from mail order catalogues, and so on.

If you need help preparing a plan, you could talk to a debt adviser. See Useful contacts for organisations who can help you.

3. Don't let matters slide - get help if you need it

You may want to get some personal advice on the best way to approach your creditors and organise your repayments. This is readily available at no cost and there is no need to pay a debt management agency to sort out your problems. See Useful contacts for details of organisations who can help you. Whatever you do, don't let matters slide. Don't ignore any letters or court papers. If you get letters from your creditors or a summons to attend a court hearing, don't ignore these. DO stay in contact with your creditors - they are more likely to be able to help you if they understand your circumstances. DON'T fail to attend court hearings - the court will have no opportunity to hear your side. Some advice organisations will help you to prepare for a court hearing and in severe cases may even agree to represent you in court. You may be tempted to go to a debt management company. These companies offer to sort out repaying your debts, but charge for their services. They can be expensive and free help is available elsewhere. For example, the Consumer Credit Counselling Service (CCCS) and Payplan both offer free debt management advice.