When should I seek debt advice?

December 23, 2009 Filed Under: Personal Finance

Being in debt can be a stressful experience for anyone – particularly if it becomes difficult to manage.

However, not all debt has to be ‘bad’. Some forms of debt are an essential part of living our lives the way we want to. Mortgages and student loans are two clear examples of debt that allow us to do things we otherwise could not afford to do. As long as you can afford to clear them, you may feel debts like these were well worth taking on.

If you feel like your debts are spiralling out of control, though, it is important that you take action to sort them out.

Are my debts getting out of control?
It can be difficult keeping track of your debts, so how can you tell when they are becoming too much/getting out of control?

If you can answer ‘yes’ to any of the following questions, it may be time to seek professional debt advice:

1.   Do you spend more than you earn each month?
2.   Are you forced to use your credit card to purchase ‘essentials’, such as food?
3.   Have your creditors contacted you about outstanding/missed repayments?

You may find that all you need to get you back on track is a simple re-arrangement of the way you handle your finances (you could fine-tune your budgeting skills, for example). However, this may not be enough – and if you don’t think it will be enough for you, you may want to consider seeking professional debt advice.

Which of my debts are ‘more important’?
If you are struggling with your finances and would like to sort them out, you should start by ordering your debts according to their priority. This will show you which of your debts you should focus on when creating a budget.

Secured debts, such as mortgages, should be seen as your first priority. If you fail to keep up with repayments to these, you could risk particularly severe consequences, such as losing your home.

Your non-priority debts, such as your credit/store card debts, are a lower priority than your secured debts. This doesn’t mean that you aren’t obliged to repay them, but the consequences of not doing so aren’t as serious.

If your finances are getting hard to manage, and you would like help prioritising your debts, you should speak to a professional debt adviser.