The Guide Top Ten: Making a molehill out of your debt mountain

Gavin Littlejohn, chief executive of Moneydashboard.com, shares with us his top tips on getting back into the black as quickly as possible.

1 Set a budget

Review your finances and set a budget that aims to pay off the debt at a regular amount every month.

The key to successful budgeting is understanding your financial commitments, spending patterns and priorities.

Work out what is important to you, which payments are most vital (ie mortgage, household bills), to help you identify where you can tighten your belt or change your spending habits, then set a budget you can live up to.

2 Overdraft management

An astounding five million UK adults are permanently overdrawn, according to Moneysupermarket.com. If you're one of them, consider converting your overdraft (and any other debts you have) into a personal loan, as the interest is likely to be considerably lower. For example, if you need 5,000 to pay off your credit card and overdraft, you can pay interest of as little as 8.8 per cent APR over three years, with a total repayment of 5,679. This is much better than the average interest being charged on credit cards and overdrafts.

3 Sensible credit

If you're running out of cash it's tempting to bung things on your credit card to avoid going overdrawn. But this only makes sense if you can revise your budget and ensure you can pay off your card in full when your bill arrives.

4 Expensive mistake

Avoid the slippery slope of withdrawing cash with your credit card. Most credit card companies start charging interest on cash from the moment you make the withdrawal.

5 Watch your costs

If you have a credit card debt, do everything you can to cover the minimum payment each month to avoid any additional penalties.

6 Balance transfers

Look for deals where you can transfer your existing credit card debt to a new card and pay no interest for up to 18 months, provided you maintain the minimum payments. Most balance transfer cards charge a transfer fee of 2 to 3 per cent so take this into account when working out which card is best for you.

Ideally you will have cleared your debt by the time the 0 per cent interest period is up, before a higher rate kicks in.

7 Sound records

If you don't have a good credit score you're unlikely to qualify for a balance transfer credit card and it will be tricky to get a loan. If you've been declined credit recently or are worried about your credit score, check it out before applying. Lenders use a lot of different agencies to check your credit score, but the two main ones are Experian and Equifax. Always try to avoid being rejected when you apply for a credit card or loan, as a rejection impacts on your credit score going forward. If you've been rejected once, don't reapply until you know why and have put things right.

8 Defer savings

It's amazing how many people continue to save even when they've run up a debt. Compare the interest being charged on credit cards and overdrafts (see above) with the average interest of 0.12 per cent being paid on instant access savings accounts and you can see why paying off your debt first makes sense.

But before you put your regular savings on hold or make a withdrawal, check the terms and conditions of your savings accounts in case there are penalties greater than the interest you pay on your debt.

9 Keep your discipline

Track your spending by checking your balances regularly and know when standing orders and direct debits leave your account so you don't go overdrawn. Make sure you understand how the charges on all your accounts and credit cards operate and organise your bills to avoid late payment penalties. You could consider using an online budgeting tool to keep tabs on things more easily - some even help you set up e-mail reminders, so you know if you're on track.

Even when you've paid your debt off, it's good to keep track to make sure you keep on top of things in the future.

10 Get help

Seek advice before you get deeper into debt. Call the National Debtline for free on 0808 808 4000, contact your local Citizens Advice Bureau, or visit moneyscotland.gov.uk to find out about the Scottish Government's debt arrangement schemes.