Dealing with debt

How to deal with debt by yourself

It is important to let your creditors know that you are having difficulties. Then you will be able to work with them to deal with the situation. Otherwise the problems and the pressure from creditors will just get worse.

You can use the MABS self-help guide to help you through the following steps:

Make out a full budget (what it costs to live for a full year)

Your budget should include all living expenses, otherwise you will make offers of payment you won't always be able to afford. For example, winter is more expensive than summer (more heating, more expensive clothing and footwear, Christmas, etc).

You should include the costs of education, health, travel, job searching, clothing and footwear in working out your budget and adjust this to a weekly amount.

You will not spend this amount every week but it will give you a better idea of what you can afford. Many people would be surprised to find out how much the average family would spend on the basics in a year.

Compare this with your income.

Prioritise your expenses

The roof over your head, heat, light and food are your main priorities. After this, you must list your expenses in order of importance. You must be honest with yourself about expenses like cigarettes, alcohol, TV packages, mobile phone costs etc. See what expenditure you can reduce.

Contact your creditors

When you have completed a budget and you are reasonably sure of your expenses, make a list of your creditors and what you owe them. Talk to the creditors and explain your difficulties. Tell them that you have other creditors, that you have a limited amount of money to be divided between them and that you are trying to be fair to all of them.

If your problems are temporary, give them some idea of when they might expect full payments. If you can't be sure of when this will happen, tell them so.

If your problems are long-term, be honest and tell the creditors you may never be in a position to make the original payments. If interest is being added and this means you will never have the debt paid, ask them to suspend interest.

What will happen if you ignore the problem

The problems will get worse if you do nothing. If your creditors have taken legal action, do not ignore the letters. If you get a legal letter about a debt and you don't hear from them again for some time, don't assume they've forgotten about it - it won't go away. It is very important that you make contact with the creditors or the solicitor.

There is a series of court hearings in the debt collection process. The court will give you a chance to tell it what you can afford to pay - if you turn up. Otherwise the judge will just decide on a weekly amount but won't have any idea of what you can afford. If you are to appear in court, make out a financial statement (income, expenses and debts) and leave it into the courthouse for the attention of the judge a couple of days before the hearing. Send a copy to the solicitor for the creditor too.