25 apr consolidate debt

Your money: GET DIGGING OUT OF DEBT

BRITONS are plunging deeper and deeper into the red, running up a record pounds 10bn of debts on credit cards and loans in one month alone.

And that's just the tip of the growing debt mountain, according to analysts Datamonitor.

They found that the average consumer owes pounds 1,062 on credit cards, pounds 1,561 in personal loans and pounds 760 in overdrafts - a staggering total of pounds 3,383 each.

And this is on top of the biggest debt of all for most of us - our mortgage.

Laurence Baxter, senior policy adviser at the Consumers' Association, said: "Financial difficulties often build slowly and come to a sudden crisis with a missed repayment or unpaid bill.

"This often follows an unexpected change in circumstances, such as illness, unemployment, business failure or a personal crisis such as a death or divorce. For some, the answer to the problem is a simple rearrangement of their finances. For others, more drastic action is necessary."

But don't despair if your own finances have sprung a leak with more cash pouring out than pouring in.

Your Money has produced this step-by-step guide to getting out of the red and back into the black.

Just follow our eight top tips...JAMES and Vivien Newland have reduced their monthly bills by pounds 161 by remortgaging to pay off two personal loans and a credit card debt.

Their previous payment to cover their old pounds 57,000 mortgage and pounds 8,500 debts was pounds 508. Now they have increased the mortgage to pounds 66,500 and got a better deal, paying just pounds 347 a month.

The couple (pictured with their three children Jay, eight, Tilly, four, and Oliver, nine months), just wish they had taken action sooner. "I know I am repaying my debts over 25 years which is a longer term, but it has already made a big difference," says James, a technical author from Shepton Mallet in Somerset.

"We are actually being able to save a little every month, rather than everything going towards paying off the debts. And I have now cut up my credit card."

TALK TO CREDITORSTHE biggest mistake most people make when confronted with several threatening bills is to panic and bury their heads in the sand.

But if you are up-front with your creditors, the more likely they are to help you. If you are able to come up with an affordable repayment plan, it will show creditors you are serious about tackling the debt. Work out the total amount you owe and what percentage of that each debt is. So if you have pounds 100 a month to pay off debts and a credit card bill is 20 per cent of everything you owe, agree to pay the credit card firm pounds 20.

A spokesman for the Citizen's Advice Bureau (CAB) said: "Do not ignore creditors' letters. Contact them as early as possible and explain to them why you are in debt."PRIORITISE DEBTSDON'T be tempted to pay the bill that has the most red ink as it may not necessarily be the most important.

Your top priority should be to keep a roof over your head. Mortgage or rent arrears MUST be dealt with before any other bills. Traffic fines must also be paid as soon as possible. If they aren't, the court can use bailiffs to repossess your goods and if you still haven't paid, you can be be sent to prison.

Non-priority debts, says the Citizen's Advice Bureau, are credit card and store card arrears, catalogue arrears, bank overdrafts and loans. But get in touch with these creditors and explain your problem, or they will take you to court and eventually send in bailiffs.ASK FOR HELPIF you feel you have done all you can to get your debts under control, but it still seems as though you are fighting a losing battle, you should get some professional help.

It needn't cost anything, and some debt solution companies will negotiate with creditors on your behalf to help make monthly repayments more affordable.

Your local Citizen's Advice Bureau can give advice as to what to do next. Or contact Consumer Credit Counselling Service, a non- profit making organisation designed to help people with multiple debt problems. According to the CCCS, the average debt of each of their clients is pounds 24,000. It offers a free self-help pack which shows you how to budget and how to write standard letters to creditors.CONSOLIDATE LOANSA CONSOLIDATION loan from banks and building societies brings together all your debts under one umbrella, and you can negotiate a time frame for payments. Many people use these type of loans to consolidate debts with credit cards and personal loans.

But while the interest rates may look competitive and can start at around seven per cent, it usually means you have to turn your unsecured loans into one secured against your home. This means creditors can make a claim on your house if you are unable to meet payments.

Also, if you are able to pay off the debt early you may still have to pay interest as if the loan had run full-term.

If you do opt for a consolidation loan, do not be tempted to take out more loans afterwards.EXTEND THE MORTGAGE ON YOUR HOMEAN alternative and cheaper way to make debts more manageable is to remortgage, and increase your home loan to pay off your most expensive debts.

With today's mortgage rates as low as three per cent this is a popular way of ensuring you are paying less interest on your debts than you would be if you were repaying a credit card or personal loan provider.

Robert Clifford, managing director of mortgage brokers Mortgageforce, said: "Your mortgage is the cheapest way to borrow money, and enables people to avoid the often punitive rates charged by credit card and personal loan providers."

You also have to remember that you are likely to be repaying your debt over a much longer period of time than you would be normally, as most mortgage terms are between 10 and 25 years.

There is also the risk that if house prices were to collapse, for example, you could end up owing much more than your property is worth.

And if interest rates increased suddenly, you could be saddled with mortgage repayments that you were unable to meet each month.CREDIT CARDSIF you have a credit card which charges you a high rate of interest, you should transfer your debts to a card offering a low balance transfer rate.

Egg charges 0 per cent until February next year, when the rate goes up to 13.9 per cent.

Nationwide and Virgin Money both also offer 0 per cent for the first six months after you take out the card. Their rates then rise to 13.9 per cent.

You might prefer a card which, rather than offering a "teaser" rate for six months, has a consistently low standard rate. Cahoot has an APR of 8 per cent - 10 per cent less than the typical 18 per cent APRs charged by high street banks.

"By transferring, you achieve a significant saving in interest charges," said independent financial advisers P&P Invest.UTILITY BILLSCHANGING your gas and electricity suppliers could trim up to pounds 100 a year off your utility bills, according to energy industry regulator Ofgem.

No new pipes or meters are needed to switch. All it involves is signing a form from the new supplier, who will sort everything out on your behalf.

Several websites have cost calculators where you simply type in your postcode and how much you spend and the site will come up with various cheaper alternatives.

Four independent websites where you can compare prices are www.buy.co.uk, www. saveonyourbills.co.uk, www. uswitch.com and www.unravelit. com All are monitored by Energywatch, the independent gas and electricity consumer watchdog.BORROWINGAS with your credit cards, make sure you aren't paying over the odds to borrow. Look at all your personal loans and establish how much interest you are being charged.

Some loan providers charge interest of 13.9 per cent on a pounds 5,000 loan, but there are much cheaper deals available - some as low as 6.6 per cent.

Also, check you're on the best mortgage deal. Remortgaging to a cheaper home loan can reduce your annual mortgage bills by hundreds of pounds.

BORROWINGUSEFUL NUMBERS

CONSUMER Credit Counselling Service 0800 1381111 www.cccs.co.uk Or PayPlan (0800 085 4298, www.payplan.com) will negotiate on your behalf.

NATIONAL Debtline 0808 808 4000 or www.nationaldebtline.co.uk

FIND your local Citizen's Advice Bureau by using search on www.nacab.org.uk