So, you're thinking about consolidating your debts?

The first thing to remember is that taking out one big loan to pay off all the smaller ones will not make the debt go away, you will still owe the money to someone.

In fact, you will probably be in debt much longer if you consolidate smaller debts and loans into one monthly payment.

The reason for this is that a consolidation loan will be spread over a much longer term than your existing loans and are often secured by your property in the form of a second mortgage, which means that you could still be paying it off in 25 years time and although the interest rate will probably be lower, the extended term of the loan means that you will pay more interest in the long run.

Another problem with consolidating loans is that having used the money to clear your credit card bills for example, it would be very tempting to to start using them again and start the process all over again.

Debt consolidation is thus not for everyone, you would have to be determined to get out of your current situation and cut up all your credit cards and completely change your way of life.

Here's an example of how easy it is to go wrong with debt consolidation-

• Your income is £1000 per month
• Your expenses such as rent, rates, food and bills etc. are £500 per month.
• The balance of £500 a month is used to pay off credit cards and bills etc.

You decide to borrow £10,000 to pay off all your outstanding debts and your situation is now-

• Your income is £1000 per month
• Your expenses such as rent, rates, food and bills etc. are £500 per month.
• Your new consolidation loan costs you £100 a month.
• You now have £400 a month disposable income and will start to look at ways of spending it!

There are lots of people who have consolidated their debts several times and each time they tell themselves that this is going to be the last time. They often say things such as "If only I had another £5000 all my problems would go away."

The bottom line is that the only way to make your debts go away is to pay them off. Going bankrupt is not an option, it will cause you endless years of problems with being unable to get credit and relying on family members to write cheques for you when you need to send a payment in the post.

One of the problems with spending money on credit cards or borrowing money to do things is that it's easy to feel that it's not your money you're spending. This is the wrong way to look at it.

If someone was waiting outside your place of work on pay day and tried to mug you, you would be most put out and defend your pay packet like it was a family member but if you're in a fancy restaurant and the bill is a lot more than you can afford, you would sign on the line and say something like "It's only money". You would not have said that to the mugger!

Spending money that's not your own is just putting off paying until a later date, it will still need to be paid for at some time and if you're not quick enough, you'll pay interest too.

Rather than debt consolidation, why not try paying off your debts yourself? The Citizens Advice Bureau is a great source of help and will even negotiate with your creditors on your behalf but you will still need to pay off your own debts with your own money.

Here are my tips for getting out of debt

1. Stop spending money on anything that's not absolutely necessary, I recommend getting a small notebook to carry around with you and write down every single penny you spend. After a few days you will look back in the book and think, "that was a waste of money, I didn't realy need it". Everyday I see hard-up people wasting money. Every time I go to the fish & chip shop I see people buying fish & chips for a family of five at £20 a go when they could have bought all the ingredients for £5 and made it themselves.
2. Make a list of all the money you owe and decide which debt has the highest priority. If you are buying your own house for example, your mortgage would be your highest priority.
3. Contact your creditors, which includes opening all the letters they've sent you. If you start a dialogue with them they are much more likely to be accommodating with you later when you're really in trouble. Mortgage companies will sometimes give you a payment holiday in difficult times but this is only of use if you use the money you would have paid them to go against another debt, using it for a family holiday would be counter productive. Credit card companies will sometimes freeze the interest and prevent your situation getting any worse but this is easier to do if you get the Citizens Advice Bureau to contact them for you.
4. Start paying it all off, however little your payments are. All the companies chasing you are large bureaucratic entities and you can use this to your advantage by making regular payments. Every time you make a payment, you will delay the bailiffs from arriving at your door by about two weeks.
5. Get the most out of your payments by paying the most expensive debts first. Credit cards are normally the most expensive debts and the easiest to pay off. Consider this example- You earn £1000 a month and owe £10,000 on credit cards. What most people would do is wait to the last possible payment day and see how much money they have left over to give the credit card company. Much better to pay all of your salary straight into your credit card account and take back out what you need during the month. This way, you will be using what money you do have to reduce the interest you are paying and you'll think twice about spending on your card.
6. If you do decide on a debt consolidation loan, don't borrow more money than you need to pay off your creditors, you'll just be in more debt than when you started.