Managing your money - Are you struggling to pay the bills?

With more than half of us overspending in December, paying all the bills this month can be a struggle. But did you realise that missing a bill payment could cost you much more than just a late payment fee and could even damage your credit record?

Last year around 5.5 million people, representing 13% of the population, skipped a bill and ran the risk of damaging their credit record. Fortunately, late payments fees by credit card companies were restricted to £12 back in August 2006 but, as well as getting stung by fees, late or missed payments can hurt in other ways.

One missed payment is forgivable but if it becomes a habit it could mean you get turned down for credit or get charged a higher rate, your utility supplier could withdraw the service and, at the worst, you could end up in court.

One late payment will be interpreted by lenders as a mishap but missed payments stay on your credit report for 36 months. Missing a mortgage payment looks bad because they are mainly paid on standing order or direct debit and it looks you are in financial hot water.

More serious credit offences, such as County Court Judgements (CCJ), bankruptcies or defaulted accounts, will remain on your record for six years.

Is your credit record correct? Check your credit reference, credit file, credit score with CreditExpert from Experian.

Having a debt hangover could also mean that you could go over your authorised overdraft limit. This could be expensive because the interest rate on unauthorised overdrafts is often around double the normal authorised overdraft rate costing an average of 23.27%.

Research has found that we are more likely to overlook our council tax bill. Around 2.3 million people, or 5% of the population, according to the Office of National Statistics, have either missed or paid their council tax bill late over the six months from June last year. Another 1.39 million people in the same period couldn't pay their gas, electricity, telephone or rent payments on time.

And the situation is expected to get worse over the coming year; partly because of the credit crunch, increases in mortgages rates last year and rising energy prices.

Take action now!

If you think you are going to miss a bill payment, don't bury your head in the sand. Speak to your bank and ask for your authorised overdraft limit to be extended or contact the company concerned and tell them about your predicament.

The banks should try to help you and come up with a new repayment schedule. Prevent bills from being missed again by doing your sums. Work out how much you owe and consider consolidating your debts into one loan.

You then need to work out a budget including all your outgoings and spending money so that all your financial commitments are met.

Who can help with debt advice if you're really struggling?

Protect your credit history

With lenders finding it harder to raise funds themselves to lend to us, they have become much more choosy about whom they will lend money to.

Those with a good clean credit record are more likely to be offered credit than those who have a track record of missed or late payments and defaults. What with the credit crunch and the debt mountain of £1.3 trillion, some financial analysts are predicting that by 2012, seven out of 10 applications for credit cards and loans could be turned down, much higher than the 50% that are thought to be rejected today.

Monitor your credit record

For a small annual fee, you can view your report online and see if you have any missed payments or have any Country Court Judgements against your name.

The other point to bear in mind is that if you are young and taking your first financial steps or are new to the country and dont have a credit history, this can go against you. Lenders like to see a track record.

Also, make sure you don't have too many credit cards or have applied for too many credit products at the same time because it looks like you are desperate for cash. To make your record look better, streamline your credit card debts into one card and only apply for one line of credit at a time.

Set up direct debits

If you are forgetful about paying bills, set up direct debits. Sometimes you can get a discount for paying by direct debit and it ensures that your bills always get paid on time. You can set them up so that the minimum on a credit card gets paid every month. It's better to pay the minimum amount on a credit card than nothing at all!

Finally, keep an eye on your finances to make sure you are not straying over your overdraft limit by regularly logging on to your bank account.

Is your current account the best one for you? "Cheque out" the competition with Moneyextra's comparison services to find out.

17 January 2008 © Moneyextra.com

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Moneyextra.com recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.