Anything from debt consolidation loans and 0% balance transfers all the way up to re-mortgaging are options taken on by people struggling with repayments.

This can be a wonderful system for cutting down repayments - but only if you change your spending habits first.

Some people get into the habit of moving money around and think this is dealing with the problem. But it's not. In fact, it can make matters a whole lot worse. Instead of a maxed-out credit card and overdraft, you might have a clear overdraft and card and a personal loan.

The problem is not fixed, the debt has just been moved somewhere else, and if you do not deal with the spending that led to the debt then all that will happen is that the card and the overdraft drift into the red again and the whole process starts a second time - with more and more debt added.

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2. Hiding bank statements and financial mail
It might look scary or carry a red "final warning" stamp on the front, but make sure you open it.

Hiding statements does not change what they say. If you only have £30 left for the last three days of the month it's better you know that than go over your credit card or overdraft limit and get hit with a £30 fine.

Similarly, use cash machines and internet banking to check the balance on your current account and credit cards - this lets you keep up to date mid-way through the month.

Some banks and cards offer free text message alerts every week and others advise you when you are approaching your spending limit. Take out these services, remember - knowledge is power.

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3. Toughing it out
If you are in trouble make sure you tell your bank, mortgage provider, credit card lender or loan provider.

Don't try and tough it out, hoping things will get better down the line. And don't just ignore the problem and hope they won't notice.

They will notice. And you will be in trouble.

Banks are not monsters and most will listen to you and extend your authorised overdraft limit, give you easier terms or extra time to pay and sometimes offer payment holidays on things like mortgages.

If you don't need the facilities offered, you don't have to use them - but you won't get anything other than a black mark on your credit rating and a fine if you miss a payment and haven't asked for help.

The thing to remember is that banks and other lenders would rather you stayed solvent and paid off your debts than went under - it's more lucrative for them than costly court fees to recover some of the money they have lost. You really are on the same side here.

And the best time to do this is before the problem gets big, that is when you are in the strongest position to negotiate.

So, in short, tell them and tell them soon.

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4. Budget is not a dirty word
Most people hate maths, it's difficult, confusing and you are forced to do it at school (often by someone who isn't very good at teaching it and looks like they are still dressed by their mother).

But that does not mean budgeting is a bad thing, difficult, or something only done by those in extremis.

Write down your known expenses (rent/mortgage, travel, fuel bills, debt payments, food) what you know you will be spending on (annual or quarterly insurance, phone bills or even holidays and Christmas). Then write down your income.

If your income is smaller than your expenses you need to either do something to earn more cash or cut your expenses. Part-time jobs, moving to a cheaper mortgage provider, car insurer, or fuel provider might help in this.

If your income is bigger than your expenses and you are still getting into debt then you are kidding yourself somewhere.

Try moving all the money you have to use for essentials into a separate account, so that you know exactly how much you have left and don't spend more. Think long term on this, so you don't get surprised by annual or quarterly expenses like car insurance or fuel bills.

See if you can save money on gas and electricity bills
 

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5. Not saving
Emergencies happen. Burst pipes, broken boilers and uninsured drivers crashing into you are just some of the things you need to spend money on that you can't predict.

And if you don't have an emergency fund in place they force you to get into debt, quite possibly when it is the worst possible time for you or from a very expensive source.

The only thing you can be sure of is that there will be an emergency at some stage, so have some money put aside and don't raid it or delay in saving for the proverbial rainy day.

Experts say you should have enough put away to be able to cover your living expenses for three to six months - in case you are injured and can't work or lose your job for any other reason. But if that seems an unrealistic goal just put away what you can when you can - even a couple of hundred quid could pay for a 24-hour emergency locksmith to make your home secure again if you are burgled.

See the best-paying instant-access savings accounts

6. Paying the minimum
Always pay more than the minimum payment on a credit card if you possibly can.

Paying off 3% of the balance of a card rather than 2% can save you a massive £2, 200 in interest alone and see you clear your debts 15 years sooner on a card carrying a £3, 000 debt, figures from card comparison service uSwitch show.

Making the minimum payment is really just a choosing long-term pain over a small short-term cost, don't do it unless you really have to.

See the credit cards with the lowest standard rates

7. Paying late
The one thing worse than paying the minimum on a credit card, is not paying or paying late.

It's not just the fee you are charged that you are hit by, every single late payment - be it on your mobile phone, credit card or utility bill - is recorded for posterity on your credit report.

And every time you want anything from a new car insurance deal, credit card, or bank account to a new loan or mortgage deal the company you apply to checks out your credit report.

The more black marks, the more they will charge you to borrow and the more likely you are to be refused.

So find a way to make payments by the due date whenever you can.

8. Not checking your credit report
This document is key to your financial success. And it's not just there for when you are being refused credit or have been the victim of identity fraud (although it is very useful in both of these cases).

Downloading your report regularly means you can check for errors and correct them. You can also place explanatory notes on any misdemeanours and make sure no one is using your name or details to take out cards and loans using your identity.

There are three main credit agencies in the UK - Callcredit, Equifax and Experian - and downloading your report costs around £3, although you can get access for nothing initially.

You have a legal right to see your report and making sure you know what's going on is key to keeping a good, or at least the best possible, rating with banks, building societies and other lenders.

Order your free online credit report

9. Paying the wrong bills first
If you are struggling with debts it is important to remember that not all bills are equal.

For people with enough cash to pay all their bills every month it doesn't matter a jot which bill you pay first as long as they all are. But when you are struggling it matters a lot.

Put it this way, which is more important: A late payment charge on your credit card or your electricity being cut off? Would you rather stop paying your TV licence or be evicted or have your home repossessed?

If you are struggling to meet all your bills make sure you pay for essentials (housing, food, water and power) first. Unsecured debts - credit cards, overdrafts and unsecured personal loans - are bottom of the pile.

10. Not having fun
Denying yourself a social life and trying to lock yourself away in a bunker to get out of money trouble is foolish.

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Friends, relatives, family and co-workers are important people in your life - and potentially very useful in times of trouble - but cutting yourself off from them because you are "broke" is not helpful in the long run.

There are plenty of things you can do that let you have fun without the expense and it's even acceptable to spend cash on yourself when it's appropriate.

Remember, spending money is not the problem, spending money you do not have is. The point of cash is to spend it, so if you've worked hard and made savings, let yourself have a little fun as well - just remember to do everything else on this list first.

Courtesy:
http://money.uk.msn.com/guides/dealing-with-debt/article.aspx?cp-documentid=6666366

 

10 habits that lead to debt By James Andrews 2008 The easiest way to stop being buried by an avalanche is to not start one and the last thing you need when trying to dig yourself out is another one landing on your head. And just like with avalanches, the smallest things are often the ones that lead to debt spiralling out of control. With this in mind MSN Money has produced its top 10 list of the bad financial habits at the root cause of debt trouble. 1. Borrowing more This might seem like a no-brainer, but it's not. The big temptation when you start building up debt is to take on more to make life simpler or keep payments down. Debt consolidation is sold as a magic solution that will solve all your problems and leave you a happy, smiling affluent individual again.

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