Handling Debts

Actually there's an earlier step. Don't have any.

You take on debt in order to enjoy a privilege or a gratification today that you cannot afford until tomorrow. And you'll pay for that enjoyment not just for the period of the loan. Because when you get to tomorrow you'll have less money than you would have done if you'd deferred your enjoyment in the first place. So, because of the magic of investment return and compounding (see later!) you'll have less money for ever.

So don't get into debt. 

Credit card debt is particularly stupid (high interest rate, just needs a bit of planning to avoid).

Debt is permissible if three conditions hold:

1. It enables you to build something important for your future, such as buying a house or building a business, and....
2. You have faced up to the repayment terms and know how you are going to meet them, and.....
3. You have faced up to the consequences of an uncertain future (e.g. business failure).

There are a number charities and advisory services available to prevent people getting into debt difficulties and to help them get out of it. Advice is usually free. Contact with any of them would be a good start. Citizens Advice has a good reputation.

A word on Student Loans. In practice they aren't loans at all, which is why they aren't covered here: they are a tax on future earnings. They are also incredibly complicated, both in the details of their execution and the consequential financial planning of both the student and the Bank of Mum and Dad. Fortunately Martin Lewis has made a good video.