Meeting Debt Head-On

Mark Ward, head of consumer affairs at credit reference agency Callcredit, offers advice on managing your debts. Callcredit has recently launched a new service MyCallcredit, which allows consumers to check and monitor their credit file online.

UK Consumers - sitting on a timebomb of debt

Recent research by Callcredit reveals that at a time when consumer borrowing is at an all time high many of us are simply burying our heads in the sand when it comes to managing our debts.

A recent report, commissioned by the Conservative party, said that the current levels of personal debt are a "time-bomb" that poses a threat to as many as 15 million households. Our research shows that upwards of 60% of UK consumers simply do not know how much they owe, while 15% openly admit to not having a clue!

The good news is that there is more pressure being applied to the credit industry to help us to borrow money more responsibly but the onus is still on us as consumers to watch what we borrow and use credit wisely.

So what should you do if you are simply in too deep?

Over-indebtedness is the new buzzword which describes consumers who have just borrowed too much relative to their income. It best describes those of us who are financially over-burdened with debt, wherever it's come from - loans, credit cards, mail order or hire purchase agreements.

Over-indebtedness is an issue that has far reaching consequences, not only could you find it difficult to manage what you already owe, but if you stop meeting your payments it can wreck your credit rating for the future. And if your credit rating gets worse then you'll find it difficult to get cheaper credit.

Acknowledge your debts and start managing your way out of over-indebtedness
  • The first thing to acknowledge is that over indebtedness is not a problem that will go away in a hurry, and you should take steps to help reduce this burden as soon as you can. So don't ignore the problem, it will only get worse if you don't start to sort it out.
  • It might take a while to turn things around, but it is much better to meet your debt problems head on from the start. You may find yourself having to tighten your belt financially, but there are some things you can do to make your life easier:
  • Get a copy of your credit report and check out how much you owe - not all your debts will be shown but it's a good starting point.
  • Check on your credit report for credit cards and store cards you'd forgotten you had and cancel or cut them up - remove the temptation to run up more debts.
  • Keep an eye on your credit report for signs of debts you've overlooked and not paid - a missed payment or default notice can seriously affect your credit rating.
  • If you can't pay a debt off, get in touch with the lender in question straight away. DO NOT ignore red letters. Most lenders are usually quite helpful and sympathetic if you make the first move and will often agree to reduced payments on a temporary basis to help you out.
  • Ignored letters and phone calls will only lead to one thing - a payment default registered against you, or even worse, a County Court Judgment. Either of these on your credit report and will worsen your credit rating. This in turn will make it very difficult for you to obtain credit in the future.
  • Poor credit management can affect your credit rating for some time - as these markers stay on your credit report for six years. So regularly check out your credit report for signs of poor credit management.
  • Seek advice before applying for more consolidation credit. In some situations, consolidation works, as you may be able to reduce the amount you are paying each month, but it will often mean that it will take you longer to repay your debts and you may pay significantly higher interest charges.
  • If you DO consolidate your debts, resist the temptation of re-using your existing credit and store cards once they are cleared - cut them up and reduce temptation.
  • Never pay for debt advice - the Citizen's Advice Bureau, National Debtline and Consumer Credit Counselling Service all provide excellent free-of-charge services. Links to their websites can be found at www.callcredit.plc.uk
Obtaining a copy of your credit file

There are three credit reference agencies in the UK - Callcredit, Equifax and Experian - which each hold credit files on you. You can obtain a printed copy of your credit file from them for a statutory fee of £2 each.

Callcredit also offers consumers an opportunity to check their credit reports online in a user-friendly format at www.mycallcredit.com. A one-off report costs £7.50 or a 12month subscription, which gives a year's unlimited access costs £29.99.

Take control over your finances
  • Don't wait until it's too late - get a copy of your credit report now and start to take control over your own finances. Use your credit report to start the process of checking out how much you really do owe and understand what credit you have available to you.
  • Take care not to get in too deep by borrowing more than you can pay. Regularly check out your credit report to make sure you've not missed any credit payments and help ensure you maintain a good credit rating.
  • If you are in too deep - don't despair - you CAN tackle over-indebtedness and these tips will help you to get started. It might seem like hard work to meet your debt head-on, but don't be an ostrich and bury your head in the sand.