Ostriches and absent liquidity

Is your plastic continuously maxxed out and you still have an absence of liquidity? Flying in the face of the failing world economies and recessionary onslaught, have you adopted an attitude to debt like an ostrich?

Then these Do's and Dont's are for you;

Do's

1 Approach your lender if you are having problems

Make contact as soon as possible, preferably before you default. Explain your situation and emphasise your willingness to pay whatever you can. You should be able to negotiate an achievable payment plan or a stop-gap payment holiday.

2 Prioritise your debts

First tackle those that threaten your home, energy supplies or liberty. These could be mortgage payments, utility bills and council rates arrears.

3 Budget

List your income and outgoings - using pen and paper or an online budget calculator - and review your spending. Use comparison websites to switch to cheaper deals on utilities. Then cut back wherever possible. Giving up smoking could save $2,000 or more a year. It may also be advisable to use any savings that you may have to pay off debts, which will be incurring more interest than you are earning.

4 Pay more than the minimum repayment on your credit cards

Research by uSwitch.com, the comparison website, indicates that paying 3 per cent, rather than 2 per cent, can more than halve the interest paid, and the repayment time.

5 Find the cheapest interest rates

Transfer outstanding balances on credit cards to one card with a 0 per cent rate on balance transfers. Then cut up your old cards to avoid the temptation of spending more.

6 Co-operate

Reply to all creditors' letters, obey any court summonses and abide by court judgments. Lenders and courts will be more sympathetic, and lenient, where your good intentions are clear.

7 Seek free independent advice

There are plenty of agencies like Citizen's Advice Bureaux doling out free budgetary advice. Unfortunately you have to get off your butt to avail yourself of these. I can assure you, the bailiffs will have no hesitation at visiting while you are still wiping sleep from your eyes.

8 Maximise your income

You may be able to supplement pay or pension with part-time work. Also, consider taking a boarder. Trading on TradeMe is a another popular way to boost funds. Some of that crap and clutter you hold dear may be worth something to someone else not so financially challenged.

9 Check your entitlements

Billions of dollars in tax credits go unclaimed. Research from Citizens Advice found that many of those entitled to the working for families tax credit and the child tax credit do not claim. See www.ird.co.nz.

10 Check your credit report

This record of your borrowing history is used by lenders to assess your creditworthiness and can be obtained, for a small fee, from credit reference agencies. Check for errors or fraudulent transactions.

Don'ts

1 Do not be intimidated or bullied by lenders

Nothing can be taken from you without the go-ahead of the courts, which should be reasonable. Keep a record of all correspondence and note down phone conversations for use in court should things so develop.

2 Do not borrow more money to pay off existing debts

Unless you are told otherwise by an independent adviser, this is likely to increase your burden in the long run.

3 Do not consolidate your debts

Consolidation loans are secured on your home - unlike many of the debts that they wrap up. In most cases, these loans are more expensive than negotiating with your creditors.

4 Do not approach a debt-management company

These charge for advice that is available free from charities. Most take a fee upfront, plus 10 per cent on payment plans - so $20 of a $200 monthly repayment goes to the middleman.

5 Do not give up trying to reach an agreement with your lender

Debt charities can negotiate on your behalf if you reach a standstill. And make small repayments even if your creditor does not “agree” to them in talks. The gesture will help if matters reach court.

6 Do not offer to pay back more than you can afford

Be realistic when negotiating a new payment plan, or your creditor may lose patience.

7 Do not keep your problems secret

Telling family and friends could unlock useful help and advice, and reduce the pressure to keep up appearances. For example, friends are less likely to suggest expensive nights out.

8 Do not resort to retail therapy

You'd be amazed how often people head for the High street. Instead, swap second-hand goods and make local friends. Or go for a walk, jog or bike ride for an instant mood-lift.

9 Do not rule out bankruptcy or an individual voluntary arrangement

There are times when debts run out of control and these options become the neatest solution. That's something a debt charity would advise on, just don't be sold an ‘easy way out' by a private company.

10 Do not panic

Jumping to release equity without independent financial advice, for example, could leave you worse off. And posting keys back to your mortgage lender will not clear your debt.

Generation X or Y or whatever version you are up to these days, your free ride has finished. you might do well to take note (and action) some of the above.

From the Times, modified.