Anyone who's experienced being in debt will understand the sheer panic that threatens to overwhelm you whenever the post arrives or the phone rings. The knowledge that you usually only have yourself to blame just exacerbates this feeling, and you may be tempted to resort to desperate measures to stop the seemingly endless spiral of money problems.
The words 'bankruptcy', 'IVA' and 'emigration' often run through the heads of those in debt, but they are really last-resort solutions that many don't need to go for. Although it can be difficult, one of the most important and helpful things you can do is to simply sit down and, with a clear head, tot up all your debts.
Don’t include things like mortgages and daily living expenses at this stage. Your aim is simply to find out the sum total you owe. Once you have this figure, work out how much you're currently paying off it each month (if at all). Then, add up all your living expenses which need to be paid each month. Forget about money for nights out, new clothes or saving for that new sofa; if you're going to be serious about clearing your debts you need to be prepared to sacrifice a few things.
Doing these calculations will give you clear idea of your disposable income. If it doesn't leave you with any, don't despair; that's why you make sure you have enough to cover your expenses. If the total of both debts and expenses comes to more than you earn; fast action will need to be taken.
Contact all your creditors and explain the situation to them. Offer to email, fax or post a 'statement of means' to them – basically, a copy of the calculation you've just done to show incomings and outgoings. Work out how much you can reasonably afford to pay each creditor per month and offer this to them. If they can see you're being genuine and honest with them about your circumstances they will probably accept. If not…you may need to consider slightly more drastic measures.
Consider taking out a debt consolidation loan if your credit score is reasonably healthy. Call your creditors again and ask them what a settlement figure would be if they're unprepared to negotiate on the monthly payment. Some may just be willing to freeze the interest accumulation if you tell them you intend to pay off the debt in full. Once you've done this with each one, start looking around for a consolidation loan. Be careful not to apply to too many companies in case this damages your credit score further.
You may decide to employ a company to deal with this for you if your debts are excessive. A debt management company will essentially pay your debt off for you, and then charge you a monthly fee which will cover admin costs and the debts themselves. This is a good option if you have a really low credit score or feel unable to handle it all yourself. Creditors are sometimes more willing to deal with a debt management company than with an individual debtor.
