MONEY TRICKY TRICKS : DON'T MAKE ENEMIES OF YOUR CREDITORS

You must do all you can to keep your creditors on your side. The best course of action is to contact any creditor you have as soon as you know you are going to have a problem keeping to the schedule of repayments originally agreed.

You can telephone them, and most will be very helpful. Because of the large number of people who have got themselves into a problem with credit and end up having to make reductions in instalments, they will certainly not be surprised when you contact them to discuss your situation.

I have often found though, that the telephone is best avoided as a means of communication with creditors unless you need to avert an impending prosecution or stop one of the utility companies from cutting off your gas or electricity. The trouble with trying to make arrangements over the phone is that you can often be told that revised repayments will be accepted, only to find that the verbal arrangement you made has never been noted - and is then forgotten about. You are then back at stage one, or even worse.

The best course of action is to write to your creditors. Explain your situation. Tell them why you can't keep up the original level of instalments and offer them considerably reduced amounts, explaining that as soon as your circumstances improve you will return to the original level of repayments.

The amounts you can realistically afford will be worked out from your listings as advised in Section Five. Always offer considerably less than you can realistically afford, that way you will at least have some leeway when, as will inevitably happen with some creditors, your offer is refused and the creditor insists on a higher amount.

You may be pleasantly surprised to find just how little some creditors will accept. One bank agreed to accept payments of only £8 per month on a debt of mine which was £3,000. This works out at only 0.2667% of the balance owing. The original minimum instalment was supposed to be £150 per month - quite a reduction!

Don't go into too much detail when you write to creditors. They are not particularly interested in your life history. If you have become unemployed then, of course, you would mention this. This is one of the most common reasons for people getting into serious arrears.

If you have simply overstretched yourself and have taken on much more credit than you can afford to pay, but are in employment, then simply confess to having seriously miscalculated your ability to keep to the commitments you have created for yourself.

Whatever reasons you have for ending up in the situation of having repayment difficulties, you must show your creditors that you got into the situation by misfortune, or mismanagement and not because you have a blatant contempt concerning any financial obligations. You must also impress upon them that you sincerely wish to get the difficulties resolved.

Never give them the impression that you don't care about the fact that you can no longer keep to your original contract. And never admit to getting into difficulties because you have been foolhardy about borrowing in the first place.

Provided that you communicate, at the earliest possible opportunity when difficulties become apparent, and provided that you are seen to be making every effort to sort things out, then your creditors, or at least the majority of them, will take a sympathetic view.

Always remember too, that all your communications with creditors should be in polite language - there is nothing to be gained by being rude or offensive. Your attempts to have your case sympathetically considered will only be enhanced by being polite and respectful. By this I don't mean to suggest that you should grovel, simply that you should project a reasonable and decent image of yourself.

Naturally some will be more understanding than others. I have had such a mixed response from a wide variety of creditors. I have experience of a very easy to deal with bank who are still accepting payments of only £20 per month on a £3,000 debt (for nearly five years they accepted only £8 per month, as mentioned above, and this was increased only because my financial situation has improved and I offered to pay more). The interest was frozen on this debt when I first informed them of my difficulties, and remains frozen nearly six years later, so although it will still take some years to pay off, I have no particular incentive to settle it at a higher rate.

On the other hand, I have had creditors who would only accept reduced payments for a trial period of 3 months, and when I was unable to renew the original repayment schedule, have handed my account over to debt collectors.

The one good thing about having your debt handed over for collection to a debt collecting company is that at least the interest will stop accruing. Also, these companies, by their very nature, are very used to people making offers of very small instalments.

A debt collection agency can take over your account, by buying it from the original creditor (sometimes for as little as 10% of the balance outstanding) or by managing it on the creditor's behalf. As long as you make some kind of offer, even for a very small percentage of the original instalments, and keep to the repayments offered, they are unlikely to bother you again until the debt is cleared. Even if this process takes many years.

In the stages before your account gets passed to a debt collection agency, you should request that the interest be frozen on the account. Explain in your letter that you are very sorry to have to make this request, but, the only way you will stand any chance of reducing the amount owing is to be able to have every payment you make deducted from the balance, and not being used to pay interest.

Although many creditors will be reluctant to freeze interest in the long term, most of them will readily agree to suspending interest for a trial period, usually three months, and occasionally six months. If you are fortunate enough to get back on your financial feet within three months then well and good, and you can recommence payments and cope with the interest being reinstated on your account.

However, if you have not enjoyed an improvement in your situation within three months, you will have to write again to your creditor(s) to explain that the situation has either not improved or become worse and you need to have interest frozen, and repayments minimised for a further term. If your situation goes on being too poor to re-establish the original instalments, then, after two or three times of requesting that the interest remain frozen and the repayments remain at the considerably reduced rate, you will usually find that the creditor troubles you no further.

Then, providing that regular payments are made, even at a tiny percentage of the original rate, you will often find that the account is left interest free, and the reduced payments continue to be accepted without further ado.

A lot of creditors, if the situation reaches this stage will simply pass your account onto a debt collection agency as a matter of course. This is nothing to worry about - as explained above, this can be quite a desirable situation, because there is then no possibility of any further interest being added, and the agency will accept very small instalments towards the debt.

I did once have an account which had been passed onto debt collectors who started adding interest. I simply wrote to them and pointed out that I had never entered into any contract to pay interest to them. Since the account was now no longer being administered with the company to whom I had pledged to pay interest, I demanded that they desist from adding interest to it. This they did. They deleted the interest which they had already added and never added interest again.

One set of creditors which you must be extra sure to keep on the right side of is the utility companies. That is, the gas, electricity, water and phone companies. The problem with these suppliers is that, if you don't do your best to negotiate and reach a mutually agreeable compromise, they have the power to cut off the service which they supply.

None of the utilities want to cut you off. Not only do they want to continue supplying you so that, ultimately, they will be making a profit from the supply of their service, but they will naturally wish to avoid the hassle of having to issue disconnection notices and send someone out to disconnect you.

With the electricity companies you may apply to have a Powercard meter fitted. Indeed, if you are having difficulty in paying your bills the electricity company may suggest to you that you have such a device fitted anyway. For all the disadvantages of a Powercard, like getting your supply cut off when the credit from the Powercard is spent, the main advantage of this system is that at least it will allow you to know exactly where you are with your electricity bill because you are paying as you go along.  Existing arrears can also be incorporated into the Powercard system : the meter is set to accommodate this by charging you slightly more for the electricity you use. When your arrears are paid off, the meter is re-set to the ordinary level.

With the gas supply company, you can apply for an electronic payment card. This card is taken to your Post Office and "charged" with units of credit which you pay for over the Post Office counter. Again, the advantage of this system is that you will be paying for your gas as you go along.

The phone company doesn't have to send someone round to disconnect you, they can simply switch you off at the exchange. However, they naturally want to maintain a telephone line supply to as many customers as they can - more customers means more profit. Of course they will get upset if you don't pay your bills. But, as with all creditors, providing that you make every effort to reach an amicable compromise and an instalment schedule, there is no reason that you should have your service disconnected.

If you find that your phone bills are too high you should naturally try and cut down on phone use. If the situation gets really critical you can request that you receive incoming calls only. This is not a very desirable situation, because it means that every time you wish to call someone you have to go out to the nearest phone box, or to your next door neighbour to beg to use their phone. However, having your phone reduced to being able to receive incoming calls only can be a lot better than having the line disconnected altogether.

In cases of rent arrears, existing or impending, you should take steps at the first sign of trouble and contact your landlord. As with your electricity, gas and water, you should give priority to your rent, particularly in the private sector. For all the protection that tenants enjoy from unreasonable landlords, the one area where the courts will not take kindly to the tenant is where there has been no reasonable effort made to have payment difficulties resolved. If you are unemployed you should be able to get all or at least a substantial part of your rent paid by your local authority Housing Department. The DSS will advise you on the procedure on claiming this benefit.

Remember, a landlord can only evict you with a court order. You should be able to avoid any case of rent arrears from ending up in the courts.

In the case of mortgage arrears you should confer with your lender as soon as you become aware that a problem exists. Mortgage lenders have special departments set up to deal with payment arrears, and, again, as long as you are prepared to make every effort to get things sorted out, there is every reason that they will co-operate fully. The last thing they want to do is re-possess your property. The majority of people who do end up being evicted and having their properties repossessed are those who have taken little or no action to try and avert this situation. If you are unemployed and in receipt of state benefits, and you have an endowment mortgage you should be able to get help with the repayments to interest from the DSS. The rules and availability of mortgage relief payment have changed a number of times over the past few years, consult your local DSS office for the latest information.

When I had a lot of mortgage arrears which I could not hope to clear, my mortgage lender allowed the full amount of arrears to be added to the capital loan. This increased my monthly payments by only a very small amount, but allowed me to breathe much easier as I had several hundred pounds of arrears absorbed into the mortgage. If you have substantial arrears which you feel it will be impossible for you to catch up with, then this is something which you could suggest to your lender. Naturally they will only allow this if they have a promise that they will get regular instalments from then on.

Other debts which should be considered more important than the likes of credit cards and bank loans/overdrafts are Council Tax, Income Tax and VAT. These are debts which, if ignored, can, by virtue of who you owe, lead to imprisonment. Naturally no-one wants to see you get into such a terrible state as to be liable to imprisonment. And the likelihood of your getting to that stage, even if you are being obstructive is very limited nowadays. I mention it only because these debts are owed to government departments who have considerably more power over you than banks and other company creditors. The same old routine applies to these debts as to all others though, it is only in their level of priority that they should be given any preferential treatment.

The golden rule is, as always, negotiate. Make your situation clear to these creditors and impress upon them that you will do everything in your power to resolve matters in the shortest possible time. You may be pleasantly surprised that the people you have to deal with will be very helpful.