Expert advice Q&A

It's all too easy to get up to your eyeballs in debt, as Paul has discovered. Here he gets the expert treatment.

"I'm 22, and currently in about £25,000 worth of loan credit debt, with bailiffs knocking at the door and courts about to take legal action. Most of the debt was acquired after falling victim to enticing adverts and taking out large bank loans and HP agreements. The HP was for items such as stereos, DJ equipment and an expensive (£2000) mountain bike. The loans were spent on many nights out on the lash entertaining people, designer clothing (£200 a pop jeans etc) daily living expenses, and items for a flat that I had at the time. Basically I wasted it. I would like to get it all sorted out so I have money to start up my own company, but without my own company I have no money to pay it off. Catch 22."

Advice from Jasmine Birtles of The Motley Fool, and co-author of 'A Girl's Best Friend is Her Money' (£12.99, Boxtree).

I have three things to say to you Paul: Get a job, get a job, get a job! Don't even think about setting up a company until you have cleared your debts. Most businesses fail within the first two years and it often takes at least a year to start making a profit anyway.

Not only that, but frankly, as we are all our own company, in effect, I don't think much of the way you've run the finance department of Paul Inc. up to now. Get real! You need to take a good hard look at the way you've been running your life and your spending and change it totally if you're to have a chance of running your own business later on.

Before you do anything else you must wipe out your debt. Here's what you have to do:

First, do a 'Statement of Affairs'. That means you write down all your debts - how much you owe to whom and what the APR (Annual Percentage Rate) is on each one - followed by a list of your monthly outgoings, and a list of your monthly incomings. Have a look at the 'Dealing with Debt' discussion board on the Motley Fool website (www.fool.co.uk) for help on this. Once you've written it all down you'll be able to get an idea of how to pay the debts off.
GET A JOB. Frankly anything that pays money will do at this stage so don't be picky. Once you have money coming in you can then start to pay more of your debts off. Some bills have to be paid each month; rent, utilities, Community Charge etc, then the rest of your money has to pay off your debts.
'Snowball' your debts. Work out which one has the highest APR and throw as much money as possible into that one, paying the minimum on the others. Then once you've paid that off, throw all the extra money at the next most expensive one and so on. Also see if you can switch some debts to 0% cards.
If you really can't pay even the minimum on your debts, contact your various creditors and tell them your problems. See if you can arrange to pay each one a smaller amount each month. Again, you can get help in how to write these letters on the 'Dealing with Debt' board on the Motley Fool site.

Finally, don't discard the dream of running your own business but get your feet on the ground first. If you can't run your own finances you certainly won't be able to run those of a company.

Advice from Gillian Reece, a qualified Personal Adviser from Connexions Coventry and Warwickshire. Visit www.connexions.gov.uk for more information.

Make sure you have reflected on what went wrong and caused you to get into this situation, before making plans for the next step. You need to analyse carefully how and why you got into debt in the first place. However, I can't advise you about the pros and cons of setting up your own business in this situation.

You need to discuss your financial situation thoroughly and explore all your options with a debt counsellor. Your local citizens' advice bureau should be able to put you in contact with a skilled debt counsellor (go to http://www.citizensadvice.org.uk/ to find your nearest branch).

You do not say whether you have a specific business plan in mind, but clearly you may well find it very difficult to increase your credit any further to provide start up finance. For advice on setting up your own business, obtaining finance, and developing a business plan visit the Business Link website.