Debt management tips for the New Year

January can prove a tough time for many people's finances. Though 2011 may seem like a distant memory, the New Year usually brings with it a few reminders: very often in the shape of credit card statements and receipts showing just how much we spent during the costly Christmas period and how much we owe today.

With the first batch of bills appearing through the letterbox, rises in transport costs and payday still weeks away, many people's finances are already starting 2012 feeling the pinch.

Different people can require very different approaches to managing their debts: from those who have several credit cards to repay and need to budget carefully to make sure they don't forget any repayments; to those with a single loan they're struggling to keep on top of.

Whatever situation you're in with your debts, the New Year provides the ideal opportunity to review your finances and make sure you're tackling your debts in a realistic, manageable way. Here are a few tips for how you could do this.

Work out how much you can afford to repay

Repaying unsecured debts, e.g. credit cards, personal loans and overdrafts, is of course important - and not staying on top of your minimum monthly repayments could damage your credit rating, result in extra fees & charges, and cause more financial problems further down the line, such as your lenders filing a County Court Judgment (CCJ) against you.

Having said that, there are more important, immediate costs that must be taken into account first: rent/mortgage payments, food, utilities and any other basic living costs that you just can't live without. Drawing up a simple budget - based on how much you earn, how much you spend on essentials, and how much 'spare' money you have left over - should help you to work out how much you can reasonably afford to repay towards your unsecured debts each month.

'Overpaying' debts

If you have any 'spare' cash in your monthly budget, you could potentially save a lot of money in interest over the long term by making more than the minimum repayments towards your debts. If you want to safely 'free up' some cash to do this, consider ways of making cutbacks and using the money saved to put towards your debt repayments.

For example, you could:

Getting debt advice

Of course, for some people having problems with their debts, no amount of cutbacks would be enough to gain control of their debts. If you can no longer afford your monthly repayments, getting professional debt help can be a good first step to take.

There are a range of debt solutions that could help you regain control of your debts - for example, a debt management plan could let you make lower monthly repayments over a realistic timeframe (though it could cost you more overall due to interest).

If you're worried about getting in touch directly with your lenders, a debt adviser could help you prepare for the conversation and suggest a clear course of action to take.

Daniel Culpan