With inflation on the rise, Britons have less money to spend on a daily basis which leaves less money to tackle existing debts. What's worse, with public sector cuts coming and companies still failing, the threat of losing your job is as high as ever.
However, there are steps you can take now to reduce the risk of your debts becoming a serious problem in the future.
First steps
When you decide to sort out your finances, make an honest appraisal of your situation and set yourself realistic targets. If you attempt too much too quickly, you could fail and become disillusioned with the process.
First off, make a list of everything you owe in order of importance. Priority debts should come first, which include debts such as mortgage repayments, council tax, secured loans and rent. These are most important as serious action can be taken against you if you don't pay what you owe.
Next come debts like credit cards, overdrafts and bank loans. Although these may not be top priority, you can't ignore them.
Creating a budget and contacting your creditors are the next steps to set up a manageable payment process. If you need professional advice, it might be worth contacting the Citizens Advice Bureau or National Debt Helpline.
Prevent further issues
Every four minutes someone is declared bankrupt in the UK and currently, there are 2.5 million people that are unemployed in the UK.
Have you ever thought of how you would pay your bills if you were suddenly made redundant? If you were to find yourself without a job or forced to leave work due to illness, accident or injury, would you be able to take care of yourself or your family's well being? Would you be able to survive without a regular income?
Some people don't think of income protection when they take out insurance or assume a life insurance policy will protect them but this is not always the case.
Unfortunately income protection will not replace your entire income but it can supplement up to 75% of it depending on your policy.
Now this may not allow you to continue the same lifestyle that you had become accustomed to, however, it could help you meet your financial obligations such as existing loans and credit cards.
The root of the debt problem
Many of us have used credit cards to purchase items, regardless if we could afford to or not. Unfortunately, credit card debt is one of the most difficult situations to be in.
This has left many of us with a large amount of debt that is becoming more and more difficult to pay off at a time when inflation is increasing. One of the problems with credit card debt is that interest keeps adding up every month you do not pay off the full amount.
The British Bankers' Association estimates that there are 33 million active credit card accounts in the UK with the average debt at £1,818.
So, what can you do? Earlier this year, Santander revealed that cardholders plan to shift £2.8 billion of credit card debt this year with an average £1,015 a customer.
If you're struggling with credit card debts you may want to try a card with a 0% balance transfer deal. These cards give you an opportunity to consolidate your debts, allowing you to make interest-free, manageable payments while avoiding offending interest rates.
Barclaycard has positioned itself as a market leader by offering 20 months on balance transfers — the longest ever interest free period on the market. The card comes with a balance transfer fee of 3.2%
What's more, if you apply now you will get 25% off the balance transfer fee if you transfer more than one balance.
If you don't need the full twenty months, both Virgin and MBNA offer 18 months on balance transfer with a lower fee.
The Virgin Credit Card comes with a 16.8% APR Representative and a 2.89% fee. It also offers a reward programme and 10% off Virgin holidays.
The MBNA Platinum Plus Credit Card is offering a slightly lower APR Representative at 16.7% and a fee of 2.88%.
However, it's important to pick an appropriate balance transfer term that works for you. If you haven't paid off your debts before the introductory offer expires, you will most likely be hit with an unappetising APR.
Remember, if you are going to take out another loan to cover a debt, you should make sure you are getting a more competitive rate of interest. Otherwise you're unlikely to make any progress.
As an alternative, you could look into getting an unsecured loan. Currently, Alliance & Leicester offer a rate of 7.1% for loans between £7,500 and £14,950.
If you are a Nectar card holder, you could benefit from Sainsbury's offer of 7.0%. This rate is only available for loans between £7,500 and £14,
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