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I've got myself too deeply into debt. What can I do?
Here's our 8-step plan for getting more on top of your debts:
1. Don't bury your head in the sand.
Ignoring your debt problems will only make them worse. Don't ignore calls or letters from the people you owe money to (your creditors). Contact them to explain why you are having problems. The sooner you do this, the more options you will have for solving your financial problems.
2. Get free advice.
There are many organisations that offer free and independent money advice, such as the Citizens Advice, the National Debtline and the StepChange debt charity. Their debt advisors can assess your situation and work out the best course of action for you.
However, be wary about the claims made by some companies that they can help you negotiate with your creditors or write off all or most of your debts. Many of them charge fees, and may only deal with some credit debts, leaving you to negotiate with your other priority creditors.
If you do use one of these companies, check the agreement carefully before signing anything, particularly how much you will have to pay in fees, which debts you will need to deal with yourself and whether you can cancel at any time if you are not happy with the service.
3. Pay your priority debts first.
There are some debts you need to pay before others, because the consequences of not paying them can be much more serious, such as losing your home, your liberty, your fuel supply or goods on hire purchase.
For example, mortgage or rent debts are a priority because, if you don't pay these, you could lose your home. If you don't pay your council tax, you could end up in prison.
If you are on benefits, you can ask the Department for Work and Pensions (DWP) to make deductions from your benefit to pay off certain debts such as fuel, rent, council tax and mortgage interest. Advisers can help you plan your budget and pay your priority debts first.
4. Pay what you can each month.
Work out how much money you have coming in and going out of your household on essential expenses like food and bills. Then work out how much you have left over to pay your creditors. If you cannot afford to pay back all the money you owe, work out how much you can afford and offer to pay this. A debt adviser can help you do this.
5. Don't take out more credit.
Don't take out more credit on your credit cards – you will only get yourself into worse trouble. And think twice about taking out a loan to pay off all your debts. You may end up paying back a lot more than you borrowed and at very high interest rates. You may not be able to afford the repayments and the loan may be secured against your home which you could then lose.
6. Facing repossession proceedings? Don't panic.
Always attend the court hearings yourself. Court proceedings do not mean that you will automatically lose your home. The court process acts as a final check to make sure repossession is the last resort. Some courts have advice desks which can provide last-minute assistance.
7. Take care with 'mortgage rescue schemes'.
Selling your home and renting it back might seem like a quick fix to your debt problems. But many of these schemes offer very little security. You could end up paying very high rent or even being evicted. These schemes are also not regulated so you will not have access to the same protections as a mortgage holder. Your local council may run a better mortgage rescue scheme.
8. Don't abandon your property.
If you are struggling with mortgage repayments, you may be tempted to send the keys to your lender or abandon your property. Don't do this without advice. If your home is then sold at a loss, you will still be responsible for the debt on the property and may be pursued for it years later.