Credit Debts - Dont Panic, Prioritise

Examples of credit debts are personal loans with finance companies, bank and building society loans and over drafts, credit cards and credit sale agreements. If you have signed an agreement to take on one of these types of debt you are solely responsibly for the repayment of that debt. You may wish to take on credit debts with a partner in which case you jointly sign the agreement and are jointly responsible for the debt.

You should always read your credit debt agreement very carefully and if you don’t understand any part of the terms and conditions contact the creditor and ask them to explain it to you. You hold the right to request a copy of your credit debt agreement at any time from your creditor, however, they may charge you a small admin fee to send a copy to you.

Debts can be split into two parts, the money borrowed, and the interest charged on that money. Interest can be added to debts in different ways. ‘Revolving’ credit debts such as credit cards and overdrafts work out the interest you owe on the debt each month and charge it to you regularly. With these debt agreements your debt grows each month and your creditor has the right to change the interest rate at any point. Alternatively, 'fixed term' credit debts such as personal loans, work out the interest you need to pay on your debt at the beginning of your loan and then add this as a fixed amount to your monthly repayments over the full term of your loan.

You should be very careful with revolving credit debt agreements because unless you are paying enough each month to cover the interest and a part of your actual borrowed amount, your debt will continue to grow. It is also very important to pay these creditors on time as they may have the right to apply late-payment charges, again adding to your debt.

You may be surprised that your overdraft is classed as a credit debt, however, it is essentially money for which you pay an interest rate to borrow. You should treat your overdraft just like any of your other debts. It's wise to shop around for the best interest rate on your overdraft and consider moving banks if you find a better deal. Visit several different banks and building societies explain your situation and see what they can offer to save you money.

Lastly don't panic, if your credit debts are spiralling out of control there are lots of organisations which can help. Contact the National Debt Help Line for free advice or visit your local Citizens Advice Bureaux. Most importantly keep on top of things, always pay on time, try to pay off part of your debt rather than just the interest and always stay fully aware of your financial situation.