Dealing with financial difficulty

Nearly everyone has some kind of debt - a mortgage, credit card, loan or an overdraft. But if you are struggling to pay your bills and make ends meet then you should get help quickly.

It's easy to build up debt, as credit cards, store cards and loans all allow us to buy things we can't afford immediately. But if you don't put a brake on your spending, debts can mount up and become hard to repay.

You might also find yourself in a situation where you have lost your job, had your hours reduced or had benefits cut, resulting in having to manage on less money.

If you're concerned about your debt it's important to address the issue as soon as possible. That way you can take positive action rather than just worrying about it and letting things get worse.

Are my debts a problem?

You know you need to get help as quickly as possible if you spot the following warning signs:

• You spend more than you earn
• You have several cards that are all maxed out
• You can't manage day-to-day without borrowing money on your credit card
• You can't keep up with your bills, or can't make payments on loans and cards
• You're being contacted about unpaid bills and missed payments
• You're worrying about how you'll manage to pay back what you owe and your debts feel like a huge burden

Understanding debt

If you're just about managing but are worrying about slipping into debt then you need to work out a budget and see what areas of your spending you can cut back on. This will help you regain control of your finances and allow you to build up a savings cushion.

Don't put it off. Tackle your money problems before they get out of control. See our guide to setting up a budget

Once you've looked at budgeting and you know just how much debt you're dealing with and what you can afford to pay off each month, you'll need to prioritise your debts.

Prioritising your debts

Pay yourself first - you need to eat and get to work, so ensure you have allowed yourself enough money for the essentials. But if you can cut back, for example, by making your own lunch, you should do.

Once you've put aside money for your day-to-day costs you can break up debt into two categories.

Priority debts

• Rent/mortgage - failure to pay could mean you lose your home.
• Council tax - it's a criminal offence not to pay.
• Utility bills - your gas/electric/water could be cut off.
• Secured loans or second mortgages - you could lose your home if you don't keep up repayments.
• Hire purchase agreements - if you don't keep up payments for things like your car, they could be repossessed.

Non-priority debts

These debts are still important, but you're unlikely to go to prison for not paying them. However, if you don't contact the companies you owe money to, they may decide to take you to court. If you then fail to make payments that have been ordered by the court, bailiffs can be instructed and may call and remove your belongings. Non-priority debts include:

• credit cards
• store cards
• overdrafts
• catalogues

Talk to the lenders you owe money to

Don't ignore any of your debts, especially if you've missed payments, as this will affect your credit rating and you could incur additional charges.

Talk to the people you owe money to, be honest and explain your situation. Most will be happy that you have contacted them and will work with you to create a repayment plan to suit you.

Sometimes you will even be able to get interest and charges stopped. You may be able to create a debt plan, where you pay one sum of money which is then divided between your creditors.

Get help with your debts

Avoid using a company that charges fees for help, as this will mean that it will take you longer to pay off your debts.

There are lots of organisations who offer free advice to help you get back on track, including the Money Advice Service and Citizens Advice. The National Debtline can also help.

You can also get advice tailored to your situation from StepChange Debt Charity by completing an online questionnaire on their website. This service is free, you don’t have to give your name and it only takes around 20 minutes to complete. Try the StepChange Debt Remedy online advice tool.