4.3.4 Tips when borrowing

With good planning and financial management you can avoid debt problems. If you do encounter problems, take action to address them. Do not wait for what may be minor financial issues to escalate to major problems for you and your family.

Here are some expert tips on how to deal with borrowing issues.

• Get free advice.
• Don’t panic or ignore the problem: unopened bills won’t go away.
• You can’t ignore your debts. Better to pay a small amount than nothing at all – those you owe money to may be prepared to accept low repayments.
• If you’re struggling with store or credit cards, stop using them.
• Work out a realistic budget that covers all your income and spending. Check whether there are any benefits or tax credits you’re entitled to that you’re not getting.
• Decide which debts take priority – like mortgage or rent – and which cost you most through penalties or higher interest rates.
• Only agree to pay off debts at a rate that you can keep up – don’t offer more than you can afford.
• Contact those you owe money to as soon as possible. Let them know that you’re having problems. Many companies will be helpful if you talk to them.
• If organisations won’t accept your repayment offers, seek advice.
• If you get a threatening letter, get advice from your local Citizens Advice Bureau or trading standards service.
• If a debt collector calls at your home, you don’t have to let them in. If you want time to get advice, arrange a later appointment. If a debt collector or lender harasses you, contact your local Citizens Advice Bureau or trading standards service.
• Check if a loan will be secured on your home. If it is and you do not keep up repayments you could lose your home. If you do not understand the terms of a loan, get advice.
• If you’re thinking of taking out a new loan to pay off debt, make sure you find out the total cost of the loan, not just the monthly repayments.
• Think very carefully before borrowing more to pay off your debts. Get impartial advice and don’t rush into signing anything you don’t understand.
• If you are thinking of using a fee-charging debt management company, then make sure you understand exactly what you’re signing up to – check what fees you’ll be paying to the company and how long it will take you to pay off your debts.
• Keep copies of all letters you send and receive about your debts.

The Managing my money team conducted a poll of The Open University’s personal finance tutors to ask them what they thought were the most useful of these tips. The four deemed most helpful were:

• work out a realistic budget that covers all your income and spending
• don’t panic or ignore the problem
• decide which debts take priority
• contact those to whom you owe money.

Figure 14