Prioritise debts to pay them off

Debts need to be prioritised if people are to pay them off and avoid getting into a downward spiral.

To tackle debt, it is best to create a budget to compare income against debt commitments and help identify the most expensive credit.

Phil Perry, director at Ark Financial Planning, said that it is most important to pay debts with the highest interest first, while making the minimum payments on others, and then work through them from high-cost to low.

If credit cards are the issue, he advised getting online and switching to a credit card with a nought per cent balance transfer so that it is easier to pay back, however loans are a little more complicated.

"Having to pay those loans back is a vicious circle because interest rates are so high. In cases like that, you have either got to reassess your finances and cut right back on those things you don't need, or those things that are costing you more," Mr Perry said.

However tempting it is, Mr Perry warned Brits not to enter deals with loan sharks as this can often lead to bigger problems down the road.

Instead seek out debt advice and speak to the bank or building society to see if there is anything they can do to reduce the burden of debt.

Debt could become an issue for more people this year as, according to Candidmoney.com, pay freezes are likely to continue.

Justin Modray, spokesman for candidmoney.com, explained that pay freezes can be particularly damaging for the squeezed middle who are already having to contend with a drop in tax credits and the increasing cost of food and utilities.

However, he said that low mortgage rates are many people's saving grace, as a rise in the base rate could be the "straw that breaks the camel's back".

If you find you're struggling with debt contact Moneyextra. Our advice is immediate with no waiting time and no appointment needed.

Moneyextra.com recommends you take independent financial advice before acting on any article

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2012-01-30 13:09:36 © Moneyextra.com