When you are having trouble making ends meet, it is very easy to panic and do something that cuts off your options at a later stage. The following tips may help you avoid mistakes that people under financial pressure commonly make.

Act quickly. If you delay you can lose control of the situation because a creditor might take steps that deprive you of choices. The sooner you act, the more likely it is that you will have a say in what you would prefer to have happen.

Get advice. The information contained in this chapter is very general. You need information, from someone reliable and trained in this area, that is specific to your situation.

Watch out for sharks. When you are in financial difficulties, organisations may contact you offering, for a fee, to help negotiate with your creditors or restructure your debts. They often get your contact details from court lists after you have been sued. Some of these organisations can be trusted, but others should be avoided. Before you sign up with a fee for service agency, check with Consumer Affairs Victoria on 1300 558 181 and follow up references. Also get legal advice about any agreement you are invited to sign.

A consolidation loan may not be the answer. A consolidation loan is a loan taken out to pay off a number of debts, so that there is just one payment to worry about instead of several. The payment may even be lower than the combined payments of the loans that were consolidated. However, there are a number of disadvantages with consolidation loans. You may end up paying a higher rate of interest than before, especially if your consolidation loan paid out bills or debts that were interest-free. Even if the interest rate is the same, you may end up paying more dollars because you are paying over a longer period of time. In addition, the lender may not agree to the debt consolidation loan unless you can provide security, such as a guarantor, which would mean dragging someone else into your financial problems and putting them at very real risk of having to pay if you cannot.

Don't make offers to creditors unless you are sure you can afford to meet the arrangement in the long term. It is often easy to work out a payment you can afford for now and even the next few months. However, if the arrangement breaks down because you forgot about some big expenses due six months down the track, you will probably find the creditor is not willing to negotiate next time around. Before you make any offers be sure that you have considered your total financial position and have planned how you will meet all your commitments.

It is not in the creditor's interest to explain your rights to you. Just because a creditor tells you that something bad may happen doesn't mean that this is true. Keep a level head if a creditor threatens you or gives you a deadline to come back to it, and say you will respond after you have taken advice.

Pawnbrokers can be a very expensive form of credit. For example, if you pawn your video for $50 and reclaim it two weeks later for $60, you are paying the equivalent of over 1000% interest per annum. Worse still, if some emergency arises and you can't repay the money on time you risk losing your goods. If a crisis arises and you need small amounts of cash, you may be better off contacting emergency relief agencies (see Chapter 13, Emergency Relief and Material Aid).