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Last Updated: Monday, 16 July 2007, 14:50 GMT 15:50 UK
Coping with debt when things change
Even if you are managing your borrowing at the moment, bear in mind that this can change if your circumstances alter.

Circumstances can change for numerous reasons, for example because of:

  • relationship breakdown
  • long term sickness or disability
  • starting a family
  • a family bereavement
  • unemployment or sudden redundancy.
Events completely outside your control, such as a rise in interest rates or an increase in the cost of living, can also affect your ability to manage your debts.

However, there are lots of things you can do to avoid problems, and lots of places where you can get help and advice if needed.

HOW TO IMPROVE YOUR SITUATION

It makes sense to do what you can to prevent borrowing problems occurring in the future.

Don't borrow more than you can afford to repay and work out a realistic budget.

Emergency fund

Consider setting up an emergency fund, if you haven't got one already.

Work out how much you can afford to put aside each month and try to build up enough savings to cover your spending for about three months.

Remember, this is an emergency fund!

Don't be tempted to dip into it for other reasons.

Insurance

You might want to consider taking out insurance to protect yourself and any dependants against changes in your income. Your partner, if you have one, might want to think about this type of cover too.

However, the various kinds of insurance available are not suitable for everyone or all circumstances and they can be expensive.

Consider getting advice from an insurance broker or financial adviser.

  • Financial Services Authority (FSA) - the UK's financial watchdog, has information to help you:
    (requires Acrobat reader)

  • Direct.gov - information from various government departments.

  • Department for Work and Pensions - information about benefits to which you may be entitled.

  • Advice UK - the largest UK network of advice-providing organisations

  • National Union of Students (NUS) - advice for students.

  • HM Revenue & Customs - information about tax credits to which you may be entitled

  • One Parent Families - information for single parents

  • One Parent Families in Scotland

  • Gingerbread - information and advice for lone parent families

  • BBC News Financial Healthcheck - outlines the first steps you need to take to sort out your finances.

    CAN I BORROW MORE?

    Just because someone will lend you money, that doesn't necessarily mean you can afford to borrow it!

    Make sure you can manage the repayments and think about what would happen if your circumstances changed.

    Do this by drawing up a budget taking into account how your income and spending are likely to change over the lifetime of the loan.

    Also look at how much you will pay back in total (by multiplying the monthly payment by the number of payments). You might be surprised!

    To help you to budget, use a online calculator such as these

    CREDIT REPAIR

    If you've had problems with debt but you're now getting yourself sorted out, you might think about trying to repair your credit history.

    Don't be tempted to pay for a credit repair service that claims it can 'clean up' your credit history.

    You can sort out your credit report either yourself or with expert help free of charge.

    You can get free advice about:

    • County Court Judgments, bankruptcy, defaulted accounts and other arrears
    • sorting out your debts
    • applying for credit even if your past is not perfect
    • the contents of your credit report.
  • UK credit repair - provides free help and information on repairing your credit history.






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