Speak to bank first, those in debt advised

Consumers struggling with debt should contact their banks as soon as possible, a mortgage expert has said.

Dominik Lipnicki, director of Your Mortgage Decisions, remarked that banks tend to be "very understanding" if people contact them in advance to let them know they may go over an overdraft limit or see a cheque bounce.

In these situations, banks tend to be quite "flexible" and willing to accommodate situations such as reduced payments for a time, he added.

"That is far better than getting into a spiral of debt and getting a payday loan and then keep on borrowing money just to serve the debt, because that can only end up one way," Mr Lipnicki advised, noting that the debt on payday loans that get rolled over can expand by 25 per cent per month.

The expert concluded: "It is very difficult to get out when you get into that spiral."

For some people, the time to have called their bank has passed and they will have taken out a payday loan in response to a crisis.

In such an instance, good advice will be needed on how to tackle a situation in which the debt is piling up and spinning out of control.

Not to do so could lead to a downward spiral where the level of debt only gets worse and for those who owe as much as £15,000 or more, an individual voluntary arrangement or bankruptcy may be the best options.

IVAs may be a better measure than bankruptcy as the former option is confidential, while the latter can be published in the local press.

Public attitudes are hardening against individuals using bankruptcy as a means of clearing debts, according to a survey by insolvency professionals body R3.

It found 82 per cent of the public believe some people use the system to deal with past irresponsible spending and 64 per cent think those who have been reckless should be treated differently by the system to people who are simply unfortunate.

By James Francis