January: The month of financial fallout and how to tackle the creditors

January sees bank and credit card statements crashing onto the mat, some never to be opened for fear of what they might confirm. There are those brave souls who have online access but trembling fingers and forgotten passwords will save the day.

Christmas is the time when the greatest contribution to personal debt is made. While the New Year sees financial gurus launch their annual crusades. They offer sound advice and guidance to a better financial place - one of stability and solvency.

There are also many worthy charities like CAB (the Citizens Advice Bureau) ready and waiting to help those with money worries reconcile their lot, and their services are free.

Here are some statistics to get you thinking

• Personal debt (including mortgages) in the UK is running at a figure circa £1.500 trillion - or £1,500,000,000,000,000 - it looks so much more impressive spelled out. Excluding mortgages the figure is £160 billion - or £160,000,000,000.

• There are approximately 100 mortgage re-possession and 350 landlord re-possessions daily. That's 450 families being made homeless every day. Assuming the average family is two adults and two children that computes to 9,000 people every week.

• There are more than 500,000 county court judgements made annually, the vast majority of which are never satisfied.

I could go on, but that's enough doom and gloom for one day.

The point is - given the depth and range of free help and support, how can it be that things go so badly wrong for so many?

The answer is complex. There are those who are fearful and shamed by debt. There are those who would feel embarrassed, even humiliated, by seeking charity. Some of these good folk choose instead, to engage a debt management company. Not surprisingly such appointments do not go down well with creditors. How does one justify paying a third party to tell creditors that one can't afford to pay them? In the mind of the debtor it is the act of paying rather than being seen as a charity case that is the justification. Irrational, illogical? Yes - and it's also very, very human.

When faced with danger (and that's what debt represents) we humans go back to basics. Doubtless everyone is familiar with the 'fight or flight' syndrome. But there's a third 'f' - freeze.

Freezing is what many do when faced with seemingly insurmountable financial problems - they freeze and do nothing.

It's the doing nothing that antagonises creditors and leads to the conclusion that they're dealing with someone who won't pay rather than can't pay. That's when letters and telephone calls start to get menacing.

Debtors who decide that they can't take on the creditor will take flight. Those who believe they have a case to make - and that doesn't necessarily mean paying - will stay and fight.

There is another way. Don't wait for the creditor to come a-chasing, take the problem to them and ask them to help negotiate a solution. In dealing with defaulters, creditors are well prepared to take pro-active measures against non-payers. It takes the wind out of their sails when debtors pre-empt them and strike first. More importantly, they are more likely to help.

This then, is for everyone struggling with debt, especially those that prefer not to seek help elsewhere. This is the first step in do-it-yourself debt management.

Make a note of the bills that you can't pay due to a lack of funds - no matter who they are or what service they provide. Write a short letter, such as that below, to them explaining your dilemma.

*substitute reason as appropriate

I recommend writing rather than phoning for two reasons: One, in a letter you get to say exactly what needs to be said - no more no less. Two, you won't be drawn into making promises you may not be able to keep.

It will always feel better knowing that you have taken the initiative.

However, don't expect every creditor to respond favourably. Some will, others won't, and still others may not answer at all. Don't worry about that - you can't be responsible for their actions. The important fact is that should any creditor take recovery action against you, the positive action that you have taken will count heavily in your favour,and at the same time show them in not too favourable a light.

More next time on the different types of creditor.