#Paul's top tips for getting out of debt

Debit cards

A debit card lets you pay for things with money from your bank account without needing cash. To use it you’ll need your PIN number – normally the same PIN to use the card in a cash machine – which you enter into a card terminal in shops, or into a website when buying things online. The money is normally deducted from your bank balance in one to two days.

Credit cards

Although using a credit card is similar to using a debit card, with a credit card money isn’t immediately deducted from your bank account. This is because – instead of spending your own money – credit cards let you spend money the bank has lent you, up to a certain limit every month. The bank then sends you a bill for the total amount of everything you’ve bought once a month. You don’t have to pay it back all at once, but you pay extra interest on any money you haven’t paid back when it’s added to the next month’s total.

Card safety

Memorise your PIN number, don’t write it down, and never tell it to anyone else. If your card is lost or stolen, ring your bank and let them know so they can cancel your card and stop other people using it immediately.

Keeping track of your spending

While buying things on credit and debit is sometimes easier than using cash, it’s also easier to let your spending get out of control. With a debit card you’ll need to know your bank balance, because if you try to buy something that costs more than the money you have available then you either won't be able to pay or your bank will charge you extra for going over your limit.

With credit cards you don’t need all the money in your bank account at the time, but remember that you need to pay for everything eventually. Don’t be tempted to just pay off the minimum amount of your bill each month. Interest payments mean that the longer you leave paying the more expensive it will be. So pay off as much as you can, and avoid making any big purchases until you’re sure you can afford them. After all, there’s no point having some cool new shoes if you haven’t got enough money to go out and show them off.

Credit card debt: Paul's story

With more than 1,700 different types of credit card and an average outstanding balance of £3250, putting purchases "on the plastic" has never been more popular.

However, as Paul Freeman found, it wasn’t getting hold of credit that was the problem- it was paying it back.

Paul received his first credit card shortly after his 18th birthday. It had a £9,000 limit. “My dad’s jaw dropped when it arrived in the post. He didn’t even have that credit on his card! But that was my invitation to spend,” said Paul, adding: “I got a Mini Cooper at 18, which was the ultimate car for me at the time. I bought it on finance and was paying it off fine until I started modifying it.

"It’s one of those things that are not cheap. I would do something then after a few months I would get bored and do more and more to it.

“From the age of 17 to 28 I was spending money on that car like it was water. When things go wrong you have to pay for repairs to keep it on the road to get to work.”

Spiralling debts

Despite holding down a good job and working overtime to make the payments, Paul’s debts spiralled.

Having paid just £400 for the car initially, during the following years he spent a £36,000 using savings, earnings and credit cards.

He said: “At my worst point I owed £22,000 on loans and credit cards. I didn’t have as much disposable income so I used credit cards to make the minimum payments on my loan. That’s the worst thing you can do because the interest was getting higher on my credit card.”

Turning point

Paul did not feel the full impact of his debt until he decided to move into his own place. He said: “A lot of the time I was in debt I was living with my parents not paying much in rent so I had a bit more money. I also felt my job was quite secure. I felt comfortable and thought I could pay it off.

The turning point came when I moved out on my own. After rent, bills and finance repayments, I only had about £150 left over to last me the whole month.

It meant I was limited on what I could do. Three years ago, I wanted to buy a house. But I couldn’t get a mortgage because I was paying off so much debt.”

“I realised I had all these bits of debt rolling around. I thought I’m going to collate all my debt. My dad was a bank manager and he helped me search for the best way to do this. My parents also put their names down as guarantors in case I defaulted on payments. That meant my payments were much lower. I’ve been paying the loan off for the last three and a half years. I’ve only got six months left to pay.”

“The amount of disposable cash I will have will be totally different when it’s paid off.

It will be great, like getting a massive payrise!

The last three years I’ve tried not to spend any money unless I’ve got it. I don’t use credit cards any more except for one I keep for emergencies. I’ve cut the credit limit on that to £300. So far I haven’t had to use it. If I want something, I’ve got to have the cash so I save up.

Sometimes I think it would be nice to go out for dinner whenever I want and not worry about money. It’s a shame I didn’t sort out my debts a bit earlier.”

And the Mini?

“The Mini is still around but needs a new engine, which will cost about £2,000. The way I look at it now, when I’ve finished paying off the loan, it will be a hobby or a toy. Before it was my primary interest. Now I’ve realised there are other things in life.”

Paul’s top tips for getting out of debt

• The best bit of advice is before you even get to the uncomfortable bit to sort it out early. When you’re £10,000 in debt you think it’s a lot of money. But the repayments weren’t as bad then as they became later.
• Try to pay off all your bills using a low interest loan. I found it was easier to stay on top of payments that way.
• Draw up a budget for bills, rent and loan repayments.
• If you can, put some money aside in a high interest savings account for yearly expenses.
• Everyone gets tempting offers from credit card companies. It’s about having self discipline. I didn’t have any.

This person's name has been changed to protect his identity.