How to avoid unnecessary debt -just say 'no'! Become your own debt counsellor

We come in to this world empty handed, and go out the same way. There are no pockets in shrouds. Yet what we do in the intervening years can make our lives a heaven or a hell.

Just recently I've read a number of articles about people who have worked their way clear of debt. They've done brilliantly well, and are now looking at the years ahead without the fear of re-possession, soaring interest rates and withdrawal of credit. We can all learn a lesson from their success. But to get to that position in life, they've had to take a long hard look at their situation, and they've had to take radical steps to make the changes necessary.

In the last decade or so, personal debt has got out of hand. Banks were literally throwing money at borrowers throughout the late 90s and early noughties. The temptation to buy now and pay later has resulted in a mountain of unsustainable debt. The banking system came to near-collapse under the weight of it's ill-judged generosity, and governments are now mired so deeply in the consequences of all this debt that they can scarcely see a way forward.

A couple of years back I read an article in the Telegraph which blamed the banks for the spiralling price of UK homes. This kind of thinking went against accepted wisdom back then. The link between easy credit and price increases seemed a leap too far. And yet it was the plain, simple truth. Easy credit drives increased demand, and increased demand drives price rises. Since banks have come to their collective senses, and begun to restrict lending to those who can reasonably cover their loans, house prices have tumbled like dominoes.

I apologise to the anti-drugs campaign, whose slogan I have misappropriated for this hub, but really this is sound advice. If you are considering getting yourself into debt, first ask yourself three questions;

1. Is your purchase necessary? Do you already own or have access to, something that will adequately do the same job. Champagne and caviar, leather upholstery, the latest iPhone, and yes, even that coffee at Starbucks, all rank very far down the list of essential items.
2. Can you comfortably and conveniently cover the repayments? If the answer to this is only if I cut back on my food bills/ economise on heating/ visit a pawnbroker, then clearly you should be looking at other avenues. If the answer is 'yes', then why not save up for the item and buy it for cash. Not only will this save you a pile of interest, but cash buyers can generally cut themselves a good deal.
3. Is this the best possible deal? If you've decided you definitely need this item, and you can easily afford the payments, and don't have the luxury of time to save up in, then go ahead. But first find out whether the credit on offer is at the most favourable rate available. And do check out what the penalties are for early repayment. If you suddenly come into cash you might want to clear your debt straight away, but many loans charge a premium for this, so read the small print.

If just asking yourself those three questions has made you doubt whether getting into debt is your best option, then just say 'No'!

My parents were teenagers in World War Two. Dad grew up in a terraced Victorian house in South London with a tiny back garden, and in between air raids, getting an education, and courting my Mum, he, and everyone else in his little patch of the world concentrated on the day-to-day business of staying alive.

Staying alive meant a great many things to do personal safety, but a big part of survival was concerned with growing and acquiring food, and keeping warm and well clothed. As a consequence my grandmother turned over their little plot to food production, and what her hens thought of the air raids is anyone's guess! My Mum learned thrift in those war years. As well as being a good cook, she was a champion knitter, and a keen and careful seamstress. Sheets that had worn thin in the middle would be cut down the centre, and the good, outer edges would be seamed together to provide a few years extra use. My dad's shirts, worn out at the elbows, were cut down for my brothers to use. And even in the 60s when I came along, the heavy velvet blackout curtains from the war years would be dragged out of storage in the winter to serve as extra blankets on our beds.

Now I hope we never have to revisit the privations of my parents' childhoods, nor even some of mine, but I think there are still lessons to be learned. We're always too quick these days to discard and replace when we could so easily make do and mend. A friend of mine grows salad in an old kitchen sink, and I've seen discarded chimney pots used for growing flowers in. Vintage furniture can be given a new lease of life with some nails and glue, or a lick of paint. The kids' clothes can me passed along, or cut up to make the patches in a memory quilt. Think about it. New and shiny is not always the best way forward, especially when money is tight. Even rich and trendy people are going down this route. If in doubt, use these buzz-words: vintage, antique and retro. See what I mean? Second-hand really is all the rage!

I've read an awful lot lately about debt counselling and debt consolidation. Well, think carefully before you go down that route. First check out whether the service is a free one. Thankfully, some charities and advice lines give this kind of help without making a charge, but be aware that most debt consolidation comes at some sort of a cost, even if it's only the percentage fee charged when transferring one credit card balance to another. This amount may seem tiny in the greater scheme of things, but if there's a way to avoid it, then do.

In order to decide on your budget, you need to have a handle on your income and outgoings. List them all out, and tot up the totals. If you are making repayments on a number of interest bearing loans and credit cards find out the interest rates on each of them, and prioritise re-payment according to the highest rate. It's always worth clearing that high premium charger first even if it's more tempting to pay off a smaller (but cheaper) loan just to cross it off your list. Also, consider transferring debts to a credit card with a 0% interest period. You will have to pay a small premium to do this, but at least it gives you a breathing space to get your debts in hand. The big thing to remember if you do do this, is do not put new purchases on this card. They will rack up a staggering amount of interest whilst you are clearing off the original debt. It's worth keeping hold of one of your other cards for new purchases, and clearing this down as you go so that no new debt accrues.

My Yorkshire-born Mother-in-law used to say that money is round to go round, and flat to stack up. I'm not 100% certain what she meant by that, but I think it ran along the lines, of taking care of the pennies, and the pounds taking care of themselves.

Money can be very hard to come by in the regular way, so it's no wonder that debt has been seen as such an attractive option by so many for so long. The truth is though, for the vast majority of us, our day-to-day job or business is our main source of income. Since the credit crunch arrived we've had to learn a hard lesson. The party is now officially over. The governments of the West have arrived in their janitors' coats with their brooms and black sacks to clear up the mess. and guess what? They're going to send us the bill!

At the moment interest rates are at a historic low. Do not see this as a green flag to get more finance, see it instead as an opportunity to clear down existing debt by paying any little extra you can afford. The interest rates will not stay this low for long. Similarly a round of tax increases is pretty much inevitable. There is more financial pain to come.

Those in charge of our economy may feel equipped and and able to spend their way out of a recession, but you and I are not necessarily in that position. Now is the time to earn as much as we sensibly can, learn from the mistakes, of the past, save for the future by economising, and plan ahead for any unexpected events. And good luck! We're all going to need it!