Some debt advisors state that the total amount of debt accrued per month in credit cards, loans, mail order catalogs etc., should not exceed any more than 36% of our gross monthly incomes.  This is the maximum target level a mortgage lender will allow while assessing a potential borrower.

What is the best next step to take?

The secret to using debt to your advantage is to make sure that you buy assets which will increase in value.  For example, a mortgage will allow you to live in a nice home with the hope of making a profit from it in the future.  A student loan will allow you to study for a good job which will bring you many financial rewards.

Instead of using credit for profitable purchases like the above, most people use their cards to purchase everyday items which decrease in value the moment that they are bought, for example, food or clothes.  If you do have to revert to your credit card for these goods, you should pay your total balance in full to avoid interest charges.

A credit card should never be used to finance a holiday as a holiday does not appreciate in value.  Add to this a card with a high interest rate and you are dabbling with bad debt.  An ideal debt to income ratio should not rise above 20% of an annual income when calculating personal loans, credit cards, utility bills etc.  Figures that rise above this mark are likely to turn creditors away, even if payments are maintained.

It is essential to draw up a list of income and outgoings. Taking your outgoings away from your net income will give you the figure you have left to meet other needs; it may not be a lot but it gives you a starting point from which to work, and can highlight areas in which you can economise. For example, on a working day, you may wish to buy lunch from the nearest supermarket but this could cost around £5 per day. You could reduce this significantly, actually saving over £1,000 a year, by making the effort to prepare sandwiches at home.

Paying regular utility bills by direct debit saves money because most companies will give you a discount for paying by this method.  Equally, paying bills on time will prevent extra charges being made.  Certain bills, unfortunately, just cannot be avoided because we all need to live to a decent standard

A great way of ensuring that you waste as little as possible is to keep your shopping trips to the minimum; this reduces the temptation to waste money on non-essential items but also cuts down on fuel and transport costs.

You work hard for your money so make it work hard for you.

Another great way to stop impulse purchases causing debt is to freeze your credit cards – Seal them carefully in a freezer bag, and then put this bag into some water to freeze. Your cards will still be there when you need them – but the time taken for them to thaw out gives you thinking time about whether you really need to use them.

If you can afford it put a small amount of money away each week or each month. No matter how small, eventually this will mount up to a nice little pot to help cover any rainy day emergencies. Make sure that this money is put in a high interest savings account – and put the first £3000 in a cash ISA to avoid paying tax on your savings.

2. Write down everything you spend. It’s surprising how much money you can waste on non essentials and not even remember where it went.

3. Unless you are possessed of sufficient discipline to use a credit card sensibly, it’s better to stick to cash. If your weekly budget for shopping is £60, for example, then take £60 in cash with you and leave the debit and credit cards at home. That way you can’t over spend. This is also a useful tactic on nights when beer can impair financial judgement!

4. Be leary of credit. If you can’t afford it now, odds are you won’t be able to afford it later. If you must use credit, check the APR, repayment period and possible penalties for late or missed payments.

5. Don’t carry money or credit cards “just in case”. That way you won’t spend on autopilot.

6. Never buy new when second-hand will do. Besides being better for the environment, buying second-hand is better for the purse.

7. Be a saver! Save up for planned purchases and treats. Shop around for good interest rates on savings accounts and watch the pounds mount up. It doesn’t matter if it’s only a small amount saved each month. It will add up.

8. The supermarket is not your friend! Supermarkets market their goods with great care and skill to seduce you into thinking you’ve got a bargain. If you didn’t need it in the first place, then it’s not a bargain. Write a list and stick to it.

9. Buy only what you need. Particularly for smaller families, buying large amounts of goods because they work out cheaper can be counter productive. Many products have limited shelf life and will end up going off and being wasted before they are consumed.

10. Enjoy your cash! Being free of debt and the “feel good” factor of some savings frees you up to really enjoy what you’ve purchased, rather than worrying about the debt which it has entailed. Go out and enjoy the debt free world.