First thing to say about this subject is - Don't Panic.

Having debt problems can give you serious emotional and psychological stress. There can also be practical consequences that can follow you for a long time.

There are different types of debt, though, so although you'll be reading mainly about credit card debt here, it's worthwhile looking at any other forms of credit or debt that you might have. If you feel any of them are problematic, you can also find out how to get help.

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The definition of debt

Debt is money that you've borrowed from, and therefore owe to, a third party. This third party can be a bank, a credit card provider, a parent or your friend.

Borrowing money comes with the obligation to pay it back. When you apply for credit card finance, for example, you know that it's not your money that you'll be spending and that you'll have to pay it back with interest. It's important to spend time on a credit card repayment calculator before applying for or accepting a deal.

Not all debt is bad

Home loans are usually considered to be good debts because you're buying a roof over your head and hopefully your property will increase in value over the years. It's an investment, essentially..

If, however, a debt costs a lot of money in interest and the item you bought probably won't increase in value, then it could be seen as a bad debt. Even the best low-rate credit cards have a lot more interest applied to them than home loans, so if you don't keep on top of payments, you can easily spiral out of control.

About your credit card debt

Generally, if your debt-to-income ratio climbs above 40 per cent; that is, if 40 per cent of your income is going on paying debts, then you need to do something about it. Your first port of call should always be an advice service. Thankfully, there are lots of organisations that offer help and advice.

Finding financial or debt counselling and advice

The National Debt Helpline is free and it helps you to find a financial advisor or counsellor near you. If your debt has really got you down, then you can also access personal counselling through this body.

Once you've spoken to a debt counsellor, you might want to go down one of several routes to getting your finances back on track. Your counsellor may suggest a few options to you.

A debt consolidation loan

If you have several debts, maybe a combination of credit card and personal loan debts, then bringing them all together under one loan might be the solution. These loans are designed to help people by rolling all their debts into a bundle, most often with significantly lower interest rates than they're already paying.

A balance transfer credit card

These cards let you transfer your existing balance onto a new card that has a low or maybe even a zero percent interest rate for a number of months. You can compare credit cards that offer a balance transfer on a comparison site. When you see the right credit card apply only once you've made sure that you're eligible.

If you go over to a balance transfer card, you have to make every effort to pay off your balance before the introductory period-which can be up to 20 months-ends so that you're not paying the higher revert rate. It's not a disaster if you only have a small balance left over, but if this is the case, try not to spend any more on the card until it's gone.

Start a Part IX agreement

Avoid this option if you can. Debt Agreements are marketed heavily and sold by debt management companies. A Part IX Debt Agreement is very expensive and very restrictive.

A Part IX agreement is more serious than a consolidation loan or a balance transfer card. This agreement, between you and your creditors, means that you can't reasonably pay everything you owe and that your creditors accept this. You've agreed to pay what you can within a specified time frame (sometimes 12 months) and that after this period has elapsed, the rest of your debts are cleared.

This sort of agreement is a form of bankruptcy and should only be considered if there's no other way (apart from actual bankruptcy). Entering into a Part IX agreement means that your details will be entered onto the publicly available National Personal Insolvency Index (NPII).

The agreement will also be listed on your credit file for five years and you will have trouble being approved for any new credit. Your credit score will go down.


If you're in such debt that you can't pay it off within a reasonable timeframe and you have little prospect of improving your situation, then you could think about bankruptcy. This is only a solution if you've had financial and legal advice and you've been refused debt consolidation and a Part IX agreement.

Bankruptcy will free you from most of your debts, but it can have a lifelong impact on your credit rating. You're deemed to be bankrupt for three years after the ruling and a trustee manages your financial affairs during this time. Once you're discharged, the bankruptcy will be listed on your credit report for at least another two years and your details will go onto the NPII.

The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.