A simple guide to help you get out of debt, manage debt and understand bankrupcy. Also understanding credit cards, thier positive features and thier downfall!

I would not say that I am expert in debt, not a consultant in any way, the only qualification I have is that I have been there. I have taken banks (Alliance and Leicester) to court and won, twice and managed to get myself out of debt without having to declare bankruptcy or an IVA.

Being in debt is not entirely your fault, the banks will lend you money, give you an endless amount of credit cards and entice you with what you could have. A new car, the flat screen TV a meal with friends etc... The banks are a business, making their profit from interest, interest you pay!

Calculate your debt

The first thing you need to do is to calculate your debt, find out how much you owe, to whom and the interest you are paying for the honour. This is the first step to finding out how much debt you have acquired.

Work out your finances

Next, work our where your money is going. If you get paid £1500 a month, work out where every penny goes and count every penny even the chocolate bar you buy, your daily spending habits are very important, 'look after the pennies and the pounds will look after themselves'.

Budget

Work out your budget, you need to separate this list and work out what you have to spend and what you like to spend.

The list of what you have to spend is the rent or mortgage, gas, electric, food, petrol for work etc.

The list of what you want to spend is completely different. The £2 you spend on a cup of coffee at lunch time in the cafe, when coffee is free in work, the cable TV, the meals out, CD's, DVD's etc... All the things that you do not really need!

Discuss with partner

You need to tell you partner, wife, husband as they will give you the greatest support and help you curb your spending! Nothing is worse that your wife wanting to spend, spend, spend when you are getting further and further in debt!

Look at your suppliers

Many of us set up direct debits and forget about them, or what we are paying for, phone everybody you are paying money to each month and find out what you are getting for your money and if it is value for money.

A good example of this is house insurance, each year your premium may be increasing, although you have never made a claim, a simple phone call can often half your monthly payment.

Check you utility bills and see if they are good value for money in your area, an ideal time to think about switching off lights which are not used and making sure electrical items on standby are switched off at the mains, save your many as much as you can.

Look at credit cards, see if you are paying insurance for becoming unemployed etc! I cannot say cancel this, but this additional money could be paying off your debt!

Even companies like the AA can offer you better deals for the same service.

Tackle priority debts

Look at your list of debtors, and the interest you are paying, you need to pay the one with the highest interest first, some credit cards can go up to 29.9% interest! Focus on them first!

Be careful, my credit card interest was 17.5%, when I told them I was having trouble they increased it to 29.9%, within days!

Get a new credit card with a better deal, no interest for six months etc... Do not use it, just transfer your debt from you old credit card and lock it away!

Then get a lockable box and place all your credit cards in, what ever you do not use the cards to spend, only to look for a better place to keep your money.

Speak to creditors

Most of the people you owe money to will understand, especially your bank, I found HSBC and First Direct very very good. Your mortgage company may be able to give you a mortgage holiday, the council can delay payments of your council tax (you pay for 10 months out of 12, you can choose which months to pay).

Be cautious when speaking to your credit card companies, they can increase your interest rate and effect your credit status if they reduce your interest too much

Use credit cards in your favour

Firstly set up a direct debit paying the minimum amount on each credit card, this will be done automatically and avoid a late payment charge. It will also save you time from visiting a bank or save you money having to post a cheque.

Some people use their credit card all the time then pay off their full balance at the end of the month, stating that they get one months bank interest, on the back of their credit card. Be careful about doing this, credit card companies are waiting for one mistake, the purchase you cannot afford to pay back at the end of the month.

Don't borrow to pay off debt

One of the last this you should do is borrow money to pay off debt. Done wisely it could save you allot of money, you need to check out interest rates, a credit card could be 29.9% interest, but a loan could be 8% interest. Make sure you can pay off the loan early without and additional charges, and make sure can pay more each month than the minimum amount. Once you have transferred the debt from a credit card to a loan destroy the credit card!

IVAs and bankruptcy

IVA's

Bankruptcy should only be considered if you have scraped all you out goings to the bare minimum and you incomings will still not pay them all! I cannot offer further advice, you need a debt advisor, ask the Citizens Advice Bureau who will give you free advice.

The process bankruptcy is easy, and you stay bankrupt for 2 years, although your credit status remains bad for longer and companies do not forget. Being bankrupt you have to monitor your bank account even more, as overdrafts and loans are out of the question, if you do not have the money you do not get! bankruptcy is really the last option.

Be disciplined

You have to monitor your money, regularly look at you bank account and if you have any money left at the end of the month pay some more of your debt, the one with the highest interest first. Remember that every £10 borrowed you could be paying £2.90 back in interest a year, £2.90 out of your pocket. Does not seam much but owing credit cards a £1000, you could be paying £290.00 back in interest a year, from your pocket. £290.00 you could have spent on yourself. Pay back the debt as soon as possible and keep the money for yourself!

Further help - Contact the right people

Do not pay other agencies to help you sort out your finances, it will affect your credit status and cost you money, charities like PayPlan or the Citizens Advice Bureau will offer you better advice and help free.

Some useful links:

IVA Help and Advice