How can I get my finances in order?

Q I am 20 years old and ?18,000 in debt. This is based on ?8,000 for a career development loan while the rest is on credit cards and another loan. I am in a complete mess and my credit rating is so poor I can not get a consolidating loan. I am determined to get my finances straight and can afford about ?150-?200 per month in repayments.

I have recently approached a debt management company who say that they can negotiate with my creditors to stop the interest and help me get out of debt but I will have a blacklisted credit rating for six years. Could you offer any help, advice or contacts?

DM

A The good news is that there is a way out of your financial problems, though you will have to take some tough measures and keep a tight grip on your spending. But since you have made the decision to get your finances in order you have taken a very important step towards being solvent again.

At the moment you have two very different forms of credit: a career development loan, plus credit card and personal loan debt.

First, the career development loan: the Department for Education and Skills pays the interest on your loan while you are learning and for up to one month afterwards. You then repay the loan to the bank over an agreed period at a fixed rate of interest. You may be able to postpone the start of your repayments for a maximum of 17 months if you are unemployed. You will still have to repay the loan even if you didn't complete the course. If you talk to your bank you may be able to pay the loan back over an extended period to lower your monthly outgoings.

Secondly, the credit card debt and personal loan. It is often possible to come to an agreement with lenders in order to make a final settlement of your debts. You could either write to each of the companies asking them to freeze the interest on your debt and make a proposal of how much of the capital you plan to repay each month. Alternatively, you could explain that you would like to make a lump sum payment in full and final settlement of your debt. Although this might not be the full amount that you owe, your lenders may prefer to have some money than see you go bankrupt.

The most important step for you now is to get some expert advice, either from a money counsellor at your local Citizens Advice Bureau, or through one of the charity debt helplines, National Debtline or the Consumer Credit Counselling Service. You need to make an appointment with the CAB, who will help you draw up a debt repayment plan, and help you prioritise your spending and budgeting. It may be that bankruptcy is an option, but it will affect your credit rating in the future and you need to take individual advice on whether it is the right path for you.

It is best not to use the services of a credit repair or debt consolidation agency. They will charge you for a service which you can get for free from the CAB or the helplines. What's more, you want to retain control over your finances, and are likely to be able to come to an agreement much more quickly with your creditors if you negotiate with them in person.

Useful numbers:


Consumer Credit Counselling Service: 0800 138 1111


National Debtline: 0808 808 4000