The top 10 warning signs of debt

You may not think you've got a debt problem - but then again, you may be in denial! Here's how to tell...

For the first time since 2007, the number of people being declared insolvent has fallen in England and Wales. The latest figures reveal that in the second quarter of this year, a total of 34,743 people were made insolvent, a drop of 3% from the first quarter. The insolvencies were made up of bankruptcies, individual voluntary arrangements and debt relief orders.

However, while this is good news, this is still a 5% increase on the same period last year.

The problem is, these days, most of us have some form of debt to deal with - whether it's a loan, a credit card, or an overdraft. So how exactly do we tell when that debt has become something we should really be worried about?

If you're just about managing financially, you might not think you have a debt problem.

But if your finances are a bit of a mess and if you, even occasionally, struggle to keep up with your debt payments, this could indicate that your debt is a bigger issue than you realise.

Facing up to these problems can be really hard. And it can seem far easier to simply ignore the problem, shove your bills in a cupboard somewhere, and hope it will all go away.  

Unfortunately, it doesn't work like that, and the longer you ignore your debt problem, the worse it will get.

So here are the top 10 warning signs that your debts could be spiralling out of control.

1) You're only paying the minimum monthly repayment on your credit cards

Minimum monthly repayments are typically set at ridiculously low levels. This means that if you're only managing to pay this amount, it's going to take you a long time to pay off your credit card debt in full. Not only that, but you'll end up paying far more in interest before you clear your balance.

2) You don't know how much you owe and you don't want to find out

If you've lost track of how much you owe and have no idea how you ended up in debt, you're probably overspending. Losing track of what you're spending where is not a good idea, especially if you're spending large amounts. It indicates you've really got no control over your finances.

3) You're borrowing more to pay off your debts

Borrowing more and getting further into debt to meet your other debt payments is a dangerous path to follow - particularly if you're using payday loans, logbook loans or credit card cheques.

Equally, if you're taking money out on your credit card just to cover monthly payments on other debts, you could find yourself in serious trouble in the future. Find out more in Six dangerous ways to borrow.

4) You're spending more than you earn

If you have no idea what your budget is and you're spending more than you earn each month, or you're not sure whether your salary is covering your expenses, you could be in serious trouble.

5) You use your credit card to pay for everyday spending

If you regularly use your credit card to pay for necessities such as food or petrol and can't afford to clear the balance each month, your debts will continue to build up and put more strain on your finances.  

6) You're regularly late paying bills

If you regularly fail to make your bill payments on time, your cheques bounce, or you overspend on your credit card or overdraft, you'll incur extra fees and charges from your bank. This will drive you further into debt and could also damage your credit rating.

7) You don't have any savings

If you're unable to put even a little money aside into a savings account each month because your debts are too high, that's not a good sign. Having said that, it is usually wise to pay off your debts before starting to save - so it's the right strategy, but don't be blase about it: it's a sign that you are struggling.

8) You find it hard to talk about your situation

If you find it difficult to be honest with your friends and family about your debt problems, or you're lying to them about your spending habits, you could be in denial about your debt.

9) You've been rejected for credit

This could be because you've already got too many credit cards - even if you no longer use them - or because you've missed payments in the past.  All of this can damage your credit rating. Find out more in What REALLY damages your credit rating.

10) You're constantly worried about your finances

Research from talkaboutdebt.co.uk has revealed that 61% of people in serious debt aren't sleeping due to debt stress, and 29% have taken up to six months off work. If your money problems are affecting your working life, leisure time, and how you sleep, it's time to seek help.

Help yourself

If any of the situations outlined above apply to you, you're probably feeling concerned. Debt can have a serious impact on your life, but the important thing to remember is that you don't have to deal with it on your own.

Simply talking about your financial problems with your friends and family can feel like a huge weight has been lifted off your shoulders. What's more, it's a big step in helping you to face up to your debt problem.

And don't forget that lovemoney.com can also help. Why not have a wander over to Q&A where you can ask other lovemoney.com members for advice? Many have been through similar situations and can share tips from their own experiences on how best to tackle a specific problem you raise.

Financial products

The following financial products may also help you to fight back against your debt:

If you have credit card debt that's earning a hefty rate of interest, transfer that debt to a 0% balance transfer deal right away. This will give you some breathing space and give you a chance to tackle your debts head on. A good option is the NatWest Platinum Credit Card MasterCard which offers a fantastic 16 month interest-free period.

Just be aware you'll have to pay a 2.9% for the card balance transfer. You also need to remember to try to clear the balance within this 16 month period. If you can't, make sure you're ready to transfer the remaining debt to another 0% card - just remember you'll be charged another transfer fee in the region of 3%.

Alternatively, you could switch your current account to a bank which offers an interest-free overdraft, and use that to pay off debts or transfer an overdraft. The Santander Preferred Overdraft Rate Account, for example, offers a 0% overdraft for an impressive 12 months!

It's also a good idea to get a 0% new purchases credit card for any further spending you need to do. The Tesco Clubcard Credit Card, for example, will give you 13 months interest-free on your spending. What's great about this is that you'll be able to focus on your more expensive debts without worrying about racking up any interest on any purchases you make, for a year.

So if you can't move all your debts onto interest-free deals, try snowballing - it's a very effective way of tackling your debts. Find out more here.

Finally, if you desperately need more money, you could consider taking out a personal loan such as the Alliance & Leicester Personal Loan or the Sainsbury's Finance Nectar Cardholder Personal Loan - both of which offer a low rate of 7.8% APR.

Seek advice

If you're still feeling completely at a loss as to how you're going to tackle your debts, contact a free independent debt advisory service such as Citizens Advice, National Debtline, the Consumer Credit Counselling Service, Payplan and Advice UK. You can read more about all of these in Get out of debt with free advice.

These charities will be able to provide guidance on a range of options to help you sort out your debt problems, and you won't have to pay anything for this advice.

But whatever you do, don't bury your head in the sand and think your debt problem will go away by itself. Because it won't. There are people out there who can help you and the sooner you start to face your debts, the easier it will be to get yourself out of debt. So don't give up hope!

This is a classic article that has recently been updated.

More: Where to get free debt services | I'm a celebrity bankrupt