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<p>Five golden rules</p>

The Money Advice and Budgeting Service have put together a tried and trusted plan to help you work your way back into the black.

Here are five golden rules to follow.

1. Do not ignore your debts.

There is nothing to be gained from hiding from your debts, no matter how overwhelming they may seem. So the best thing is to face your fears and deal with your debt. If you don’t your credit rating could be affected. And if your debt relates to a mortgage, you could potentially lose your home. Do not ignore penalties or fines – the cost of these snowball, as late payment incur more fines. 

More information

2. Prioritise your debts

Make a plan of action by prioritising your debts. Start by dividing them into priority and non-priority or what are known as secondary or unsecured debts.

How to prioritise your debts

3. Revise your household budget

Go through your budget and cut out everything that you can live without – gym membership, golf course, nights out. Review your food bills – bottled water, takeaways, alcohol. If you’re really in trouble you might question your use of car etc. MABS have a calculator with a useful check list to help you work out a new survival budget.

How to make a new budget

4. Communicate with your creditors

Contact the companies to whom you owe money. Be open and honest. If you’re nervous, here’s some handy tips on what to say in a phone call or in an email.

What to say in a letter or phone call

5. Beware of borrowing to repay your debt

Stay well away from ‘easy money’. Be wary of ‘consolidating your debt’. Years ago there were high profile financial advisers advising people to top up their mortgages to pay off their debts. Don’t. As MABS says – this just turns unsecured debt (which creditors can’t demand you pay off easily) into secured debt. So don’t rush into paying off debt. Get advice first.

Be very wary of moneylenders might seem like a solution at the time, but with legal doorstep lending companies charging exorbitant annual interest charges.