When is the best time to take debt advice?

Today I have guest post from Sara Williams who writes about everything to do with debt and credit ratings at her personal website Debt Camel. She is also a debt adviser at her local Citizens Advice.

Debt advisers help people with problems debts – but how do you know if your debts are that bad? After all most people have credit cards, and overdrafts are pretty common… and most people wish they weren’t so big…

Could refinancing your debt help?

If you catch a debt problem early enough, then “refinancing” can help. This is the term for switching your expensive debt onto a cheaper, or preferably zero, interest rate.

With a good credit score, look at getting a 0% balance transfer credit card. If you get one, try to use this as a good time to pay off that debt, not just as a problem solved cheaply for a couple of years.

The easiest time to clear debt is when you aren’t being charged interest as all your payments are cutting the balance down fast. So this is also the point to look seriously at money saving ideas – some of these will work for you!

If you have more debt than you can balance transfer, you could look at getting a large loan. People often like the idea of consolidating their debt like this, it makes it easier to budget with one fixed payment each month.

But this can go badly wrong if you then run up the credit card bills… in a couple of years many people find themselves with a large loan and maxed out credit cards again. So if you do consolidate your debt you must close down the credit cards, only keep one with a balance of under £1000 for emergencies, not for everyday spending at all.

The warning signs of problem debt

If you say Yes to any of the following, then it would be a good idea to talk to a debt adviser:

Are you using your credit card to pay other debts?
Are you paying for grocery shopping or utility bills with a credit card?
Do you worry about managing any loans or the minimum payment to a credit card?
Do you take cash out on a credit card?
Are you close to, or over, your overdraft limit for a lot of the month?
Do you not want to open letters or emails because they could be bills?

If you are at this point then the chances are you can’t refinance your debt cheaply. Taking out expensive debt so you can make the repayments to other debts is getting onto a very slippery slope. At some point you won’t be able to get any more credit.

A range of debt solutions

There are a range of different debt solutions that could help you. If you only have one or two problem credit cards, then you can phone them up and ask for an arrangement to pay less, and for the interest to be frozen on your account.

If you have more creditors, or you are worried by the idea of having to talk to them, taking formal debt advice is a good idea. A good debt advisor can help you look at all your options and see what the pros and cons are and decide what matters to you. It can be a huge relief to share your situation with an expert who isn’t judgemental.

StepChange, who run Debt Management Plans (DMPs) for hundreds of thousands of people, say that half their clients have waited more than a year before asking for help. And during that time, their debts and unpaid bills have usually got larger every month. If they hadn’t waited so long, their problem would have been easier and quicker to solve.

Debt advisers are good at dealing with crises, but they like it when a client comes much earlier. So don’t worry you would be wasting their time with your small problem – sometimes a half an hour chat can let you see your finances in a different light and give you an action plan to take back control.

Where to get good debt advice

I always suggest people talk to charities because then you know you will be given the best advice for your situation, not steered towards a debt option that will make money for a commercial company.

Who you go to depends on what sort of debts you have (things like rent arrears and tax debts are quite different from credit cards), whether you would like to see someone for an appointment or talk over the phone, whether you are self-employed and where you live in the UK. So read my Good Places for Debt Advice for the full list to pick from.

You can follow Sara on Twitter here and find her on Facebook here

Fiona Hawkes