Debt charities unable to help: Five steps to help yourself

Millions of Britons struggling with debt are being left without access to consumer charities due to a severe lack of funding.

National Debtline, the partially-government funded charity offering free debt advice to consumers, has become overwhelmed with calls as millions of households around the country struggle to keep afloat during the credit crunch.  The charity receives 1,600 calls each day, and is currently only able to answer half of these calls due to insufficient funding and staff shortages, leaving 24,000 calls a month unanswered.

And with the credit crunch biting deeper as unemployment soars and the availability of cheap credit dries up, around 4 million people are expected to seek out advice from consumer charities during 2009 –many of whom will be unable to access help.

Eddie Collins, consultant for Citizens’ Advice, said that the biggest concern of the majority of their cases was debt, with one in three people struggling with unsecured debts and mortgage repayments. “We now deal with about 7,250 new debt problems every working day, with the average unsecured debt of our clients standing at £17,000,” he said.

And with consumers facing a three week wait to meet with a consultant, fears are growing amongst consumer groups that more people will turn to rip-off ‘debt solution’ companies that charge extortionate fees in exchange for assistance, but which often leave customers no better off in the long run when it comes to resolving serious debt issues.

Joanna Elson, chief Executive of the Money Advice Trust, is urging consumers to take more initiative and do more to help themselves while they wait to see a debt advisor.  Guy Morris, head of debt solutions at TotallyMoney.com agrees, saying, ‘there are many steps consumers can take towards better financial health if they are unable to access free advice from consumer groups. Often the advice you will receive is nothing you can’t sort out for yourself anyway, so take a hands-on approach to your money and you may be surprised at how much you can achieve’.

Here we take a quick look at the best tips for helping yourself out of debt:

1.    Reduce your interest rates
If you are struggling with your debts, whether in the form of credit cards, loans or your mortgage, the most important thing to do is to make sure you are borrowing at the lowest interest rates possible. Even though the market is quite sparse at the moment there are still some great deals to be had for the determined borrower. Speak to your lender about lowering your current interest rate, utilise websites that compare the market for free, and get on the phone to an impartial advisor. Most brokers have access to the entire market, including exclusive deals not available direct to the public – meaning you could end up with a better deal, a lower interest rate, and save yourself a lot of money over the term of your loan.

2.    Pay off your debts
Once you have all your debts at the lowest interest rate possible, you need to prioritise them in order of the highest interest rate to the lowest. Your mortgage is most likely to be the cheapest loan you have, so focus first on clearing your unsecured loans and credit card debt – these are the debts that will cost you the most in the long run. Remember that the longer it takes you to repay a debt, the more expensive it will become, so work out a household budget and channel all your spare cash into clearing your most expensive debt as fast as possible. When you’ve paid that one, refocus your efforts onto the next most expensive debt, and so on. This is called ‘snowballing’, and is the most effective method of clearing your debts as cheaply as possible. If you have more than £15,000 in debt and you are struggling to repay, you may need to consider using an Individual Voluntary Arrangement (IVA) to sort your problems out, and get your creditors off your back.

3.    Improve your credit rating
Next, make sure your credit rating is in the best possible shape.  You can check your credit file by visiting www.equifax.co.uk or www.experian.co.uk.  You can apply to have any mistakes removed by contacting the company involved directly; a note of explanation may be added if extenuating circumstances caused a late or missed payment; and a note of disassociation added if you are no longer involved with a partner with severe debt problems.  Set up direct debits for your regular outgoings to make sure your bills and debt repayments are made on time, and make sure your name is on the electoral register.  You should also make sure you apply for credit prudently to ensure multiple credit checks aren’t carried out on your file, as this can affect the outcome of future credit applications.

4.    Save money on household bills
Millions of Britons are paying far too much for their household bills, with broadband and energy bills being the two biggest areas of wasted money. Research by broadbandchoices.co.uk shows that most Britons are overlooking switching their broadband supplier as a possible household saving. Only 10% of consumers switched to a better deal in 2008, saving themselves an average of £230. And with broadband now 37% cheaper and 700% faster than it was three years ago, the majority of households are paying far too much (40%) for a significantly inferior service.  Meanwhile, those that have never switched energy suppliers before could be missing out on a saving of £250 a year by not switching to a cheaper tariff. The easiest way to make significant savings on household bills is to switch to a direct debit tariff – research conducted by the Times shows that Britons are overpaying by £1 billion each year by not switching to a direct debit scheme on their household bills, and doing so could save your household £187 each year.

5.    Choose the right financial products
Many consumers are making poor financial decisions, with an estimated 5.4 million Britons choosing new financial products according to brand recognition and trust, rather than looking around for the best deals. Steven McNicholas, head of Banking and Credit Cards at TotallyMoney.com, says that the best thing consumers can do to help themselves is to shop around.  ‘Relying on brand recognition when choosing a new financial product probably won’t get most consumers the best deal. Remember that speaking to your bank manager is not the same as getting financial advice – it’s giving your bank a sale. The only way to find the best products is to speak to an advisor who has access to the entire market, and can tailor advice to your individual budget and requirements. Doing this can save you thousands of pounds a year on your mortgage, loans and credit cards’.