Your money

Sean Coughlan figures out your finances every fortnight

The phone rings as I sit down to write this column. It's my bank and, as if to prove the point I'm about to write about, it's a call to see if I'm interested in a personal loan.

We're surrounded by offers of loans and credit. Pick up a phone and the money's waiting, no questions asked. Unsurprisingly, levels of debt have soared. This Christmas, we put pound;8.8 billion on credit cards - the average debt per household, excluding mortgages, is more than pound;5,000.

The surge in debt problems isn't down to a handful of the feckless and unlucky, it affects hundreds of thousands of people. But the growth in debt has spawned another industry that offers services to people who are in financial trouble, and promises to help them out.

You might have seen the advertisements where "debt management companies" claim they can dramatically reduce the amount of your monthly repayments. They promise to negotiate with your creditors so you make just one, simple payment a month. If you're in debt and falling behind with the repayments, this could seem like a way out.

Amy Brown of the Consumer Credit Counselling Service, which runs a free debt helpline, cautions against paying for debt services when they are available free. These cheaper repayment deals can have, she says, more strings attached than might be apparent - and could cost much more in the long run.

She warns that debt management companies can take unsecured loans and turn them into secured loans. This means that if you default on repayments, you could lose your home. "We never advise anyone to take such a risk," she says. Not least because it's unnecessary, as borrowers can use free debt services - such as her own or the Citizens' Advice Bureau - to renegotiate debts without putting their house at stake.

She also questions the practice of debtors being offered even larger loans. These can seem cheaper than existing loans because they are stretched over a longer time, but it can mean paying more in interest than before, sometimes with little prospect of paying off the original debt.

Debt management services are likely to attach charges, which can mean a percentage of all repayments being sliced off. Ms Brown warns customers to watch for "sharp practices", such as sky-high charges for missed payments.

Other services seeking out those who have been in financial trouble include "credit repair" companies, which claim to be able to restore a credit record damaged by debt problems. If you have a bad record for falling behind with payments or having your home repossessed, there's nothing a credit repair company can do.

Professional advice from a debt counsellor, free, can be a much more effective way of resolving a money crisis.

email:scoughlan@virgin.netConsumer Credit Counselling Service helpline: 0800 138 1111

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