What to do about debt problems

The information in this guide was last updated on 26/02/2014

If you have money worries, it's important to realise you're not alone and there are steps you can take to stop it spiralling out of control. Find out how steps like planning your budget could help.

Step 1: Take a fresh look at your budget

If your circumstances have changed, it’s worth taking another look at your household incomings and outgoings. With less coming in and probably the same going out, reviewing where your money goes can be a sensible first step.

So go back to the drawing board and review your finances with our budget calculator.

  • Work out your total household income each month.
  • Take off the amount you need to spend on essentials – things like mortgage or rent payments, loan and credit card payments, utilities and insurance.
  • Work out how much you need to spend on things like food and transport, and subtract that too.

The amount you have left will be what you have available to spend on non-essentials like going for meals out or to the cinema. If you find there’s not enough income to cover all your expenses, look for ways to cut down and reduce your spending. The earlier you can do this the better – if you spend more than you have coming in each month you risk getting yourself into debt. 

More on managing your money and budgeting.

Step 2: Review your debts

If you’re struggling with your debts, review them to see if there’s any way you can reduce what you’re paying back.

Sometimes it can be cheaper to consolidate your debts into a single loan, particularly if that loan has a lower interest rate than your existing debts. Debt consolidation could help you pay debts back sooner or even reduce the amount you’re paying each month.

But remember, you’re trying to find a cheaper way to manage your existing debt – try to avoid increasing the overall amount you owe or taking on new debt for a longer period of time, as this may cost you more in the long run. Find out more about managing your debts.

Download our handling debt guide

Our Handling debt guide provides an easy, step-by-step guide to make an honest assessment of all your debts.

Step 3: Check your mortgage product

Always be prepared for any additional expenses. Sometimes these are out of your control, like a rise in interest rates which could increase your mortgage repayments.

If interest rates do go up, you may want to review your current mortgage arrangements to ensure they remain appropriate.  Switching your mortgage can mean extra fees, so make sure you weigh up the costs and benefits before deciding to switch.

Read our guide to switching your mortgage.

Step 4: Stay in control of your money

If you’re having trouble managing your money, look for new ways to track and monitor what you’re spending each month.

If you’re trying to stick to a budget, it’s vital that you know what every penny is being spent on so you can spot areas where you can cut back and make savings.

Online banking can be a great way to manage your finances. When you log in you can see all your recent transactions, giving you a detailed view of your spending. And unlike paper statements, you don’t have to wait until the end of the month to do it.

As well as keeping an eye on your current account, don’t forget to manage debts like loans or credit cards- see if you can afford to pay off a little extra each month. It’ll bring your debts down quicker, and might bring down the cost of the interest – though with loans make sure to check for any early repayment penalties.

You may want to set up a direct debit or standing order to help make your monthly repayments on time and avoid any late payment fees.

Step 5: Maximise your income

Another way you could potentially ease your money worries is to look for ways of bringing in extra income.

There are plenty of ways you could look to do this:

  • See if you can do any extra hours or overtime at work
  • Check that you're getting any benefits and tax credits you're entitled to, see turn2us for more information.
  • look for a part-time job in the evenings or at weekends
  • rent out a spare room in your house – find out more about becoming a landlord
  • have a clear-out and see if there’s anything you can sell – you can list items online on sites like eBay or Gumtree, or sell them at a car boot sale. Make sure you’re confident that you can make a profit after paying listing or entry fees though.

Before trying any of these options, make sure you understand whether you need to pay tax on your extra income, and how to do a tax return. If you’re considering renting a spare room, first find out what affect it would have on your mortgage.

Step 6: Ask for help with managing your money

Many companies offer easy, instant debt solutions, but these are often too good to be true. Names can be misleading, so make sure the organisation you choose is a charity. Other companies may charge fees. Here are a few free sources of help and advice if you’re having trouble with debts:

If you contact these charities, give the adviser as much information as you can about your household’s financial situation, including your list of creditors and a list of your incomings and outgoings.