In debt after Christmas – what can I do? 4 January 2012
James Falla (about the author)

If the Christmas period has left you struggling with debts, we offer some practical advice for getting your finances back under control.

The weeks just after Christmas can be the most difficult time of the year when you are trying to juggle your finances.

If you have not kept to a strict budget during the Christmas period then all too often you can find yourself facing debts that you cannot repay.

If you are suffering from a Christmas debt hangover you should not ignore your debt problems and hope that they will go away themselves. Generally this will not happen and you will need to take some practical steps to make sure that you deal with your debts.

Review your finances

If you know you are struggling financially, the first thing you need to do is have a review of your financial situation. This will help you understand exactly how big the problem is.

Carrying out a personal financial review is a simple thing to do. You just need to make some lists.

First list your monthly household income. Then in a second list, write down all of your monthly living expenses. I you need to, use the Beat My Debt living expenses guide to help you do this.

Make sure that you do not include any unsecured debt repayments in your living expenses list.

By deducting your living expenses from your income, you can then see how much money you have left over each month. We call this amount your disposable income and it is what you can use for paying your debts.

Debt Management

If your disposable income is too little to cover the monthly debt repayments you have to make then the first thing to do is review your living expenses to see if there are any areas where you can cut back.

If you are able to make some expenditure cuts which then allow you to pay your debts, this is a great first step.

However if you simply cannot cut back on your expenses or even after cutting back you are still unable to meet your debt repayments, then you should consider a debt management solution.

Debt management plans

Debt management plans (DMP) are the most popular personal debt solution in the UK.

A DMP involves negotiating reduced payments with your creditors so that your total debt repayments fit your disposable income.

Using a debt management plan will make your credit rating worse. However debt management plans allow you to get back in control of your finances and start paying back what you owe in a managed way without allowing the situation to get worse.

If you feel comfortable there is nothing to stop you negotiating a debt management plan yourself. However if you would prefer help then there are both free and fee charging debt management companies who can help you each offering certain advantages and disadvantages.

Individual voluntary arrangements

If the amount that you owe is more than £15,000 or a debt management plan will not help pay off your debt in a reasonable period of time then you should consider a more formal debt management solution known as an individual voluntary arrangement (IVA).

Individual voluntary arrangements allow you to pay what you can afford towards your debt for a fixed period of time (normally 5 years). Interest charges are frozen and after that any unpaid debt is written off.

Because interest is frozen and money is written off, individual voluntary arrangements provide many advantages for people struggling with debt.

However, starting an IVA is a serious commitment and before deciding to use one you must make sure that you understand both the advantages and the disadvantages.

It is vital to get expert IVA advice from a debt advisor before deciding to start an IVA.

Debt Relief Order and Bankruptcy

Bankruptcy is often seen as a last resort for dealing with debt. However over the past few years the rules surrounding bankruptcy in the UK have been relaxed and the stigma of declaring yourself bankrupt has significantly reduced.

For this reason many people who are struggling with debts but are not home owners and so have nothing to lose are choosing to go bankrupt over solutions such as debt management plans and individual voluntary arrangements.

Bankruptcy allows your debts to be resolved in the shortest period of time. If you have no disposable income and cannot afford to make any payments at all, bankruptcy will last just 12 months before you are debt free.

If you can afford to make a monthly payment towards your debt, in bankruptcy these will last just three years compared to five in an IVA.

If you owe less than £15000 and are not a home owner, you also have the opportunity to consider a debt relief order. This works in the same way as bankruptcy but costs far less to start and you make no monthly payments at all.

Always get debt advice

If you are struggling with debts after Christmas, the first thing you should do is review your finances yourself. That way you can start to get a real idea about how big the problem is and whether you can sort it out yourself with some simple belt tightening.

If you believe that you will need to use a debt management solution, then the next step you need to take is to get debt advice.

Getting debt advice is very easy. There are a number of excellent web sites which will help you understand the different debt solutions and how they work. You can also use on-line debt forums to ask questions and learn from experts and the experience of others.

Finally speaking to a debt advisor is free. It is always a good idea to speak to a couple of different advisors so that you can compare the advice which will really help you make the right decision about the best thing to do.

What to do next

If you are struggling with debt, visit www.beatmydebt.com

Our experts are available to speak to you about your debt problem and offer advice and solutions.

Our vibrant online debt forum gives free access to experienced industry experts and others who have suffered with debt problems.

Useful guides, calculators and information are also available designed to help you understand how to manage and resolve debt problems.