Dealing with debt

Getting credit - whether it's a mortgage or any other loan - is always more difficult for people with "impaired" or "sub-prime" credit" ratings.

And even when you can borrow, you will generally be paying a higher rate of interest than mainstream borrowers.

It makes sense therefore to ensure you protect a good credit record.

The fastest way to ending up with adverse credit status is to ignore debts.

Being late with payments will upset your creditors; ignoring your responsibility to meet these bills will ensure they, too, adopt a hardline tone.

Below is a three-step approach to dealing with debt.

Step 1: Assessing your situation

Firstly list and evaluate all of your debts. Highlight priority debts which require immediate attention - for example, those with legal action pending or those where you are in danger of being disconnected from electricity or gas, or if you face eviction.

If you can't meet a repayment, make contact with the creditor without delay in order to explain your financial situation

Decide what to offer your creditors, but don't make unrealistic promises.

Step 2: Budgeting

A personal budget is an essential tool to help you tackle debt problems.

Work out your income and spending and and don't be overly optimistic about either.

Make sure you are maximising your income - are you receiving all tax credit and social welfare entitlements? Could you rent out a room in your house

Step 3: Managing your money

Shop around for the cheapest method of paying your debts, as some services charge a fee.

If you are paid weekly, do a weekly budget.

If you miss a payment, contact your creditor immediately and explain why you missed the payment.

If your circumstances change for the better and you can afford to pay more, contact your creditor with an improved offer.

(Information provided by the Money Advice & Budgeting Service)