Credit Problems? Tackle Them Head On.

Hate opening the post? Dread receiving the bill and Bank Statements? Sounds like your finances are becoming a problem.

The ostrich solution never works when it comes to debts – they just don't go away that easily. Take a tip - there's never a better time like the present to tackle a debt problem – as soon as piling bills give you a knotted feeling in your stomach, face up to the problem.

Here's some practical advice.

Make savings on your credit card bills.

Savings should be easy to come by. You just need to make cold calculating use of the special deals that many of the credit cards are offering.

Savings can be found by moving your balances to credit cards with lower interest rates and special introductory offers. For example, take advantage of the 0% deals on balance transfers such as that offered by Mint – they'll give you 10 months interest free but there's a 2% balance transfer charge. Marks and Spencer have the best transfer free 0% introductory offer. Their 0% deal lasts 6 months.

And ensure the interest you pay on any new purchases is reasonable – better still, since you're now cutting back hard, don't use your card at all! However, if it's not practical to avoid using you card, then try HSBC. They offer 0% for 9 months on balance transfers and new purchase - but they also levy a 2% balance transfer charge.

The credit card companies may call you a “rate tart” and hate you for switching around but be hard nosed and regularly move your balances between cards to take full advantage of their introductory offers. Then, when you're a month off the end of a deal, look for a new card and get the balance transferred.

Reduce your monthly expenditure with a Debt Consolidation Loan.

The purpose of a Debt Consolidation Loan is to reduce your monthly outgoings. You take all your existing loans and credit card balances and roll them together into one loan that gives you a single and lower monthly payment. The lower repayment is realised by reducing the overall rate of interest you pay and spreading the loan repayments over a longer period of time.

But as with everything, there are snags to watch out for. After you've rolled up all your existing loans into the Debt Consolidation Loan, don't start reusing the old credit lines you've just paid off. If you do, you'll simply end up digging yourself into a deeper hole and make your position much worse!

And there's another aspect you might be forced to consider. If you're a homeowner looking for a fairly big consolidation loan, the lender may want your debt secured against your home. If this happens, think carefully before signing. Remember, if you fail to sustain the agreed repayments, the lender can apply to the courts and force you to sell your house. That would certainly be bad news!

Seek help.
There's lots of help available to assist people resolve their debt problem. A good starting point is the Citizens Advice Bureau. They're local with 3,200 branches throughout the UK and are there to help.

Then there's the Consumer Credit Counselling Service. Through its free national telephone service and eight centres, the Service is able to help people with debt problems throughout the UK . Their specialist skills have already helped thousands of people by providing counselling on personal budgeting, advice on the prudent use of credit and, where appropriate, managing plans to repay debts. You'll find their web site at www.cccs.co.uk or phone them on 0800 138 1111.

There's also the National Debtline. This is a confidential, free and totally independent source of debt advice. Visit their web site at www.nationaldebtline.co.uk . On their site you'll find a free information pack with a personal budget section, debt advice and free fact sheets. Alternatively, phone them on 0808 808 4000.

Debt Management Plans.
If your debts exceed £5,000 and are spread across three or more creditors, a debt management plan might be for you. But you'll need to be able to allocate at least £100 per month to help repay the debts.

Basically under a Debt Management Plan, you agree to pay off your creditors with a single fixed amount each month. A debt management company then receives this sum and allocates the money between your creditors. In return, your creditors have to agree to freeze the sum you owe so no more interest or charges pile up.

Some debt management companies charge a fee for their service but others, including the National Debtline and Consumer Credit Counselling Service, are paid by your creditors.

IVA.
An Individual Voluntary Arrangement, commonly shortened to IVA, is a formal agreement made through a county court and can cost several thousand pounds to set up. It pays off your debts and in return for your creditors agreeing to write off a percentage of your debts, you pay an agreed monthly sum. The agreement lasts for between 3 and 5 years with periodic reviews to identify whether you can afford to pay off more each month. Lump sum payments can also be made and this will shorten the period you are in the IVA.

But an IVA's might not be for you. They're best suited to people who have a reasonably high level of income or a lump sum to contribute. And if you fail to meet the agreed monthly payments, you can quickly be made bankrupt. A specialist Insolvency Practitioner would handle all the negotiations with your creditors regarding the value of your debt to be written off and also administer the process of repaying them.

Bankruptcy.
This must be the very last step but one which more people are opting for –bankruptcies have increased by a third during the last twelve months.

With a bankruptcy all your assets, including your home, may be sold to repay your creditors. Then after a year, all your debts are totally written off and you're free to rebuild your financial life.

But records of your bankruptcy will remain on your credit history for seven years. These are the records kept by the big credit agencies such as Experian and Equifax and they are referred to by all the banks and lending organisations. Bankruptcy will decimate your credit rating and for the first year or two, make it very difficult to obtain a mortgage or any other form of credit. Nevertheless it will give you a clean slate to rebuild from.