The worst thing you can do when you owe money is to ignore the problem, hoping it will go away. The earlier you contact your creditors (the people you owe money to), the more flexible they're likely to be in coming to an agreement with you.

Priority Debts

All debts are important, but some are more pressing than others. The ultimate consequences of not dealing with a particular debt - in other words the worst that can happen - depends on what the debt is for. Some debts carry severe penalties and you should deal with these debts first. These are your priority debts. The list below shows what may eventually happen if priority debts are not dealt with:

Mortgage - repossession of your home, eviction

Second mortgage/secured loan - repossession of your home, eviction

Rent - eviction from your home

Council tax - distraint*, deductions from wages/benefit, imprisonment

Water rates - supply disconnected

Gas/electricity - supply disconnected

Unpaid magistrates court fine - distraint*, deductions from wages/benefit, imprisonment

Unpaid maintenance/child support - distraint*, deductions from wages/benefit, imprisonment

Income tax/VAT/National Insurance - distraint*,  bankruptcy

Telephone - disconnection

Hire purchase (not normal credit) repossession of HP goods

Unsecured credit card debts - County Court Judgement, impaired credit rating

(*distraint means the seizure of some of your goods by bailiffs)

Where to start

Decide which debts are priority debts and which are not. Write or telephone your creditors and tell them that you want to work out a way to reduce the debts. (Remember to quote your account reference). If you make any arrangements over the phone make a note of the name of the person you speak to, what is discussed and if anything is decided. Follow up your phone call with a letter to confirm the arrangement.  Keep a copy of all letters.

Don't make promises you can't keep

Don't be bullied into agreeing to repayments which you can't really manage. Work out how much you can afford to pay and arrange a rate of repayment based on this otherwise, sooner or later, you are likely to default or miss payments and find yourself back in trouble. The aim is not just to solve the immediate problem but to get things organised so that in future you can afford to pay your creditors and all your other expenses too.

Make regular payments

Many firms are computerised and these systems are programmed to send reminders and warnings automatically if payments are missed. It is better to make regular payments, however small, rather than make large occasional payments.

The law is on your side

Although the law gives creditors the power to take action to recover the money you owe them, it also makes them go through fixed procedures before the final action can legally be taken. So the law also gives you protection. For example, you cannot legally be evicted from your home unless the creditor has been to court and obtained the necessary authority.

Don't be unduly intimidated

Harassing people in debt is illegal. If you are harassed by creditors seek advice immediately. You can make a complaint to the local Trading Standards Office or the Police. If the person is your landlord, you should contact the Council's Housing Service.

If you need more help

Contact the National Debt Line - http://www.nationaldebtline.co.uk

Freephone helpline for debt advice: 0808 808 4000 (Monday-Friday 9am to 9pm Saturday 9am to 1pm)