I touched on this in my Planning for Possible Redundancy post a few days ago. One of my principles of money management is everyone should have what I call a SCRAM Plan. It’s the button you hit when the proverbial hits the fan and you need to cut your outgoings to the bare bones immediately, for example because of job loss.

Why is it called a SCRAM Plan? According to Wikipedia, “A scram or SCRAM is an emergency shutdown of a nuclear reactor – though the term has been extended to cover shutdowns of other complex operations, such as server farms and even large model railroads.” It doesn’t take much of an imagination stretch then to make it cover the shutdown of personal finance drains, too.

Know What You Owe – Before you can even begin to implement your own personal SCRAM Plan, it is hopefully obvious that you must know what you pay out in a given month. Review your direct debits, and go through your last 6 months of bank statements to find out where your routine spending occurs. If you have a budget plan, give it the once over and just make sure it’s accurate. Some of your regular outgoings will be obvious:

• Rent / Mortgage Payments
• Utility Bills (Water, Gas, Electric)
• Council Tax
• Landline Telephone
• Mobile Telephone contracts
• Broadband supplier
• Satellite / Cable TV
• Car Insurance

Some will be less obvious:

• Car tax
• Magazine subscriptions
• Gym memberships
• Web hosting provider
• LoveFilm subscription

Those are just immediate ones off the top of my head. You’ll probably surprise me with your own. If you have time, review a years worth of statements to get the full picture and make a note of every recurring payment you make, then total them up.

If you’re not surprised how much you spend a year, then congratulations. You likely already have a good hold on your finances. Chances are though, it came as a massive shock. But don’t worry, half the battle is working out where your money goes before you can begin to tackle it.

Work out how to cancel every non-essential entry on your list – this will form the basis of your SCRAM Plan. Dig out account numbers, phone numbers, subscription references and anything else you may need and write yourself a little ‘howto’ for each one. If you’re tied into a contract, note the minimum term expiry date for each. If you don’t know, find out. Be brutal, your gym membership is not essential to life, and neither is your LoveFilm subscription or monthly subscription to Nuts Magazine. Your mortgage payment is absolutely essential. Providing you have a roof over your head, food on the table and fuel to heat your home, you have covered the essentials of living. I can’t stress that enough. Be prepared to be brutal with your cuts if the worst should happen.

Keep it safe, keep it up to date – Your SCRAM Plan is no use if you can’t find it in 18 months time when you’ve just been made redundant, and it’s similarly of little use if you’ve changed mobile provider 3 times and taken out 4 other magazine subscriptions that you can’t remember the publishers of. If you use Google Mail, click the ‘Calendar’ link top left of your inbox and set yourself a recurring reminder to check it every month or two. If you’re slightly less on the technology cutting edge, write SCRAM in the margin of your diary every couple of months as a reminder instead.

• The Long Term Cost
• 2p Petrol Duty Increase Coming
• Dig Yourself Out of Debt: Spend Less Than You Earn
• Six of the Best! September 2009
• Frugal Friday! 5 Easy Ways to Spend Less

This is part 1 of the “Dig Yourself Out of Debt” Series, published every Thursday. Surfing old posts? You can access every post in this series by clicking here.

I’m a regular over on the Money Saving Expert forums, particularly the ‘Debt-Free Wannabe’ area. On a daily basis, people post that they owe money, but they’ve no idea to whom, how much for, or at what rate. Before you can even begin to cut your debt, you have to know what you owe.

Priority Debts – First things first. Do you have any Priority Debts? These generally are:

• Council Tax
• Mortgage / Secured Loan / Rent
• Child Support
• Court Fines

Falling behind on these can see you homeless, sent to prison or both, hence the term ‘priority debts’. Either is unlikely though, if you make a best effort to pay back what you owe with what you have available to you. In terms of council tax, the minimum arrears payment for someone on a low income can be as little as £2.65 a week.

Once you have got your priority debts under control, it’s time to attack ‘everything else’.

Find your loan agreements – Hopefully you’ve kept them safe and accessible. These will show what you’re paying, at what rate, and when it ends. If you can’t find this then check your bank statements to at least get some idea of the monthly figure. We’ll see in a little while how to find the remaining missing information.

Find your credit card statements – or access them online. Credit cards with revolving balances are usually one of the most expensive ways to borrow money longterm, with perhaps the exception of the payday loan sharks. Interest rates vary wildly from a very good 6% up to a wild 55% and beyond, depending on your own personal circumstances and payment history.

Are you in arrears with utilities? Don’t forget to take into account any arrears with your electricity, water, gas, or telephone suppliers. These generally won’t affect your credit rating but can have much more direct consequences, i.e. disconnection.

Are you in arrears with credit companies? You need to take action right here. These will affect your credit rating, and can and will end up costing you a fortune for up to 6 years after the fact. Talk to your lenders and come to an arrangement to pay what you owe, including arrears. Ask them if they can freeze your interest, effectively turning the credit product into a fixed-term loan. Don’t bury your head in the sand over the issue, as it’ll only get worse the longer you leave it. You’ll also probably start to get harassing telephone calls hourly or daily around this point, demanding you make payments you probably cannot afford. You don’t have to take this though: demand all contact by written form in future and advise them that further telephone calls will be dealt with as harassment. Speak to one of the debt charities (CCCS are very good) or Citizens Advice as a matter of urgency.

Defaulted. Debt sold. Now who do I owe? – This is where it gets murky. If you know who you owed prior to this point, contact your old lender. They may be able to tell you who they sold the debt onto.Alternatively pull your credit reports and see where the defaults are, and who they are from. This will also give you some idea of the amounts. If it has got to this point, your credit rating has already likely taken all the battering it’s going to for this debt, so it gives you the upper hand. Your debt would have been purchased likely for pennies in the pound, so you may be able to make a vastly reduced payment to the Debt Collection Agency. They would get their ‘profit’, even though you pay far less than you originally owed. It won’t fix your credit report though, but neither would paying back the full amount.

Get Your Credit Reports – There are three Credit Reference Agencies (CRAs) in the UK: Equifax, Experian and CallCredit. These folks compile your financial history in terms of your borrowing and more importantly, your reliability in paying back. Other lenders then use this historical information to credit score your future suitability for a particular product.

The information on the files remains for 6 years from the point of settlement, so if you had a bumpy credit card ride when you were 18 and finally closed the account when you were 20 it can still affect you when you try and get a mortgage at 25! Check their respective websites for a 30 day free trial, but remember to cancel before the period is up to save paying anything. Right now (at the time of writing) Experian and Equifax offer free trials. CallCredit charge £12 for 3 months of access.

One benefit of accessing your reports is they can help fill the gaps in your lending knowledge. The CRAs will know what you owe, to whom, when the agreement started, how much you should be paying, and when those payments are due!

Knowledge is power, and once you know what you owe, you are very knowledgeable indeed.

Continue reading the Dig Yourself Out of Debt Series – Part 2 is here.

• My Financial Meltdown: Part 4
• Beware The Balance Transfer Cheque
• My Financial Meltdown: Part 2
• Dig Yourself Out of Debt: Avalanches and Snowflakes
• Dig Yourself Out of Debt: Spend Less Than You Earn

This is part 2 of how this blog came into being. You can catch up on part 1 here.

As I sat in the empty house alone, I was so close to jumping in my car and using the remaining quarter-tank of diesel to get to Beachy Head (see inset picture) to jump off and end it all that it still scares me today. The one thing that kept me from doing it was my mum.

I used to have a fantastic relationship with my natural parents, but since getting married in 2005, both relationships had taken a tumble. It wasn’t that I loved them less, it was just visiting them would cause arguments with my wife. In the end, it was easier to not visit. This sounds terrible now, but it made sense at the time; I don’t think I actually spoke to my dad for almost 2 years towards the end of my marriage. What kind of son did that make me?

Mum kept in contact by text message, and I’d pop round in secret occasionally, while my wife slept. When I told my mum where I was on that cold winter day: practically homeless, a marriage in tatters, up to my eyeballs in debt and wondering about the purpose of life, she saved me there and then. “Come home, you’re always welcome here”.

And that’s what I did. I boxed up the few possessions I had, and moved back home.

My mum and step-father made me visit a solicitor a few days later to discuss my divorce and my financial matters. As it was I didn’t know how much I owed, to whom, or on what terms. All I knew was that according to my wife, I never earned enough and I was always in my overdraft not long after being paid. This was always a shock; I’d work more and more overtime to try and get ahead, and always end up with the same result. One month I cleared almost £3,000 after tax, yet still kept falling backwards.

Perhaps I should have taken charge, demanded to see my account for myself, but I didn’t have any reason to believe what my wife was saying was anything but the truth. Marriage is about trust, after all.

It was only after I moved back in with my mum that I cracked open a small pile of bank statements I’d found while moving out, checked online banking, got to grips with my credit card bills and loans that I managed to take stock. I owed personally, just over £15,000. Fifteen thousand pounds. That was a massive shock. But, by all accounts I was in a better position than of my wife; it seems she must therefore have owed £35,000 if our joint was somewhere around the £50,000 mark. But the true horror came as I discovered for the first time why, despite being on good incomes, we were so immensely in debt.

My wife was an online gambler. I knew she played the odd bingo card online, but I didn’t know the precise level of her play. It appeared that when she had emptied her account she’d start on mine, or vice versa. I was finding hundreds upon hundreds of pounds leaving my account to various gambling-related websites month in, month out. When we didn’t have any money left, she’d use my credit rating to get loans and credit cards to top us up. And so it continued and continued until both our paychecks were going on servicing interest payments and nothing else. No wonder our relationship failed, in hindsight.

And worst of all, until that point, I didn’t know why it had failed.

So, on advisement, I registered my separation with my solicitor in January 2009 and began divorce proceedings. It hurt to do it, but felt good at the same time.

The first positive, forward step I had taken in my life for a very long time.

Continue to Part 3…

• My Financial Meltdown: Part 3
• My Financial Meltdown: Part 4
• 7 Reasons My Friend is Poor
• 5 Things I Will Do When Debt Free
• Dig Yourself Out of Debt: Cleaning Up