New debt help: How to make the most of it

If you're struggling with your debts, here's a rare bit of good news emerging from all the economic gloom.

This article was first sent to readers as a '360 degrees' email.

Earlier this month, the government and the Credit Services Association (CSA) struck a new deal designed to encourage people to seek help with their debts during the recession.

So what's it all about, and will it make a difference to you?

30 days breathing space

From the end of May this year, debt collectors have agreed to give 30 days 'breathing space' to consumers seeking help to sort out their finances.

This means that during this period, you shouldn't have bailiffs beating on your door - and you can use the time to visit places like the Citizens Advice Bureau. They should be able to help you negotiate a repayment plan, and generally take control of your debts.

If your creditors are chasing you, it's crucial you seek help from an accredited debt advisor as soon as possible. Only then will the new breathing space apply.

It's a small bright spot in all the debt darkness. So, once you've bought yourself that extra 30 days, what else can you do to get your finances back under control as quickly as possible?

Pull your head out of the sand

First, you need to work out how trouble you're actually in - and face up to it. Pull together the answers to the following questions:

Exactly how much do I owe in total?

• What is the interest rate on each of my debts?
• How often do I have to make repayments?
• How long will it take to pay off each debt at the rate I'm going now?

Once you've got all this information under your belt, you'll be in a much better position to beat your debts once and for all.

To work out your overall financial position (including all incomings and outgoings) use this Statement Of Affairs calculator.

Lighten your interest load

Many people make regular repayments, yet their debt mountains never get any smaller. This is because their repayments are only covering the interest that's building up - not chipping away at the underlying debt.

To help clear your debts, you need to lighten your interest load. For example, if you're paying interest on credit card debt (and your credit record allows) switch your balance to a card offering 0% on balance transfers.

At the moment, the Virgin Money card is the market leader, offering 0% for 16 months. You can also use it to make a 0% interest money transfer into your bank account, which means you could use the card to help clear other interest-charging debt, like a personal loan or overdraft.

Just remember that after the 16 months, your remaining balance will be hit with a hefty interest rate - so fight hard to clear your debt before the 0% period ends.

Squash your spending

Pare down your spending as much as possible and chuck all the extra cash at your debt mountain.

The money savings tips section of lovemoney.com contains thousands of frugal tips. Read 12 Ways We Can All Fight The Recession for ways to cut your everyday living costs.

Or why not aim to reduce your monthly outgoings by £100?

Start snowballing

'Snowballing' means always focusing on the debt charging the highest rate of interest. It's a great way to clear your debts as fast - and as cheaply - as possible.

First, throw as much money as you can at your most 'expensive' debt, making the minimum repayments on all the others. When it's cleared, tackle the next most expensive one, and so on.

Keep your creditors in the loop

While you're reorganising your finances and seeking debt advice, keep all your creditors in the loop about what's going on and what progress you're making. This is also important if you think you're about to fall behind with repayments.

It may be an awkward conversation to have - but it could buy you valuable time and even limit the damage to your credit record.

Lenders may be more understanding than you think, and you might even be offered a payment holiday or a renegotiation of your repayment plan.

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