Only facing up to your debt problems will stop the stress

DON’T look so frightened,” Tracy Finn tells me. We are sat in the big Queen Street branch of HSBC in the City. It’s 10am on Wednesday morning, and I’m only about a year late for this meeting. “I help dozens of people with their personal debt every month,” she assures me. “Most of them earning an awful lot more than you – after all, we are in the City.” I’m certainly not alone, the average household debt in the UK excluding mortgages is £8,055.

Cheap credit flowed in the boom years. Not just for businesses and mortgages, but also in the form of personal credit. I was a student and every time I skirted close to my credit limit, it would be increased automatically. This is dangerous when you’re a fresher and your loan is paid in lump sums every quarter. Somehow money didn’t seem real. I now have more debts than I can cope with and end up skint every month 15 days before pay day.

But graduation and the working world are sobering in more ways than one. “Lots of people spend more than they earn,” says Finn, “I’ve seen people who earn £80k, but have expensive tastes. I’m just glad you’re here to see me.” I sigh a breath of relief. This might not be as bad as I imagined.

“It sounds like a cliché after all those adverts, but you need to consolidate all your debts into one affordable monthly payment.” I laugh. Little did I know that I’d turn into Ocean Finance’s dream customer.

A good APR is out of the question if you’ve missed payments in the past. Tim Moss of MoneySupermarket tells me that even missed phone bills will count against your credit rating nowadays: “It never used to be the case, but it’s really tightened up.” The best APR someone with a poor rating is going to get on a personal loan these days is around 18 per cent. Still, this is cheaper than the 19.9 per cent that is typically charged on an overdraft and credit card for a person like me.

Finn riffles through my statements to put together a realistic budget. It’s extremely uncomfortable. Finn jokes that I don’t seem to have eaten much since the end of August. “Austerity budget,” I joke back. Andrew Haggar of MoneyNet tells me my discomfort looking at my statement is a very bad sign: “You’ve got a problem as soon as you stop opening your statements. You need to know precisely how much you spend on everything to get things under control.”

Finn tots up the totals and sends my loan application to underwriters. I’m offered it on the condition that all my credit limits are cut. “We have to do this,” Finn explains, “we wouldn’t be a responsible lender if we didn’t.” Moss warns me, however, that I should be wary of even the reduced credit limits I’ve been given: “Cut up the cards, cut off the overdraft. Do not allow yourself any temptations. A debt consolidation loan needs to be a one-off. There’s a scarily large group of people that consolidate their debt only to tot up more that needs consolidating the next year at even less favourable rates.”

I’m given a choice of repayment options. Moss warns me that I must pick something realistic: “It’s extremely important that you can stick to the payment schedule. You don’t want to damage your credit rating anymore.” I go for a low payment stretched across four years. Finn assures me that I can repay early and have the interest reimbursed if I want to.

I leave feeling several stone lighter than I did before. But what next, how do I make sure I never end up in a mess again?

Moss suggests I do everything in cash. “Take out a set amount of money each day then leave your card at home. Your spending will plummet. I think people register physical money in a way that they don’t when they buy everything on their card.”

Haggers reminds me to budget. “You need to do this regularly. Making a note of everything you spend throughout the year. Don’t let yourself get stung by bills that come up once a year.”

Putting small amounts of money into an emergency Isa fund every month is a good idea too, says Moss. “Not only is saving good therapy for perpetual spendthrifts, but you are then also able to loan to yourself money for shock bills.”