Financial planning at the start of the year need only take a few hours, but the benefits could last well into the New Year. A budget that indicates every financial obligation for the year ahead can really help you to prepare your finances in advance.

A big financial obligation many people deal with is debt, both secured debts like mortgages and unsecured debts like credit cards, loans and overdrafts. In fact, the Bank of England’s latest ‘lending to individual’ figures show that unsecured debt totalled £207.5 billion at the end of November – so unsecured debts are a major feature in many people’s personal finances.

What’s the best way to deal with debt in 2012?

First of all, you need to calculate how much debt you have, how much you have to pay every month, how long it will take you to repay that debt, and the total interest you are paying. Include everything, even loans from friends and family.

As a recent press release from Gregory Pennington points out, the start of a new year can be an ideal time to do this – and to ask yourself some important questions about your financial situation.

Could I lower my monthly debt payments?

Can you afford your monthly payments? If you can, you may still be able to lower your monthly payments with a debt consolidation loan. This can also be a good way to simplify your finances if you have a good credit rating and a steady income to make the repayments.

Repaying a debt more slowly can cost more in the long run, but making smaller monthly payments can take pressure off a household’s budget and leave them with some ‘leeway’ to deal with unexpected expenses on a monthly basis.

What if I can’t actually afford my monthly debt payments?

If you can’t afford your monthly debt payments and your budget indicates you are overspending every month, you must address this as soon as possible and identify areas where you can cut back on spending. It may be necessary to strip your budget back to the essentials.

If you have gone through your budget and find you’ve spent money that you can’t account for, a spending diary may reveal where that ‘mystery money’ is going. Keep a spending diary for a minimum of one month (your spending will vary week to week). If you need some motivation to do this, consider that simple things like bottles of water and packets of biscuits could easily add up to £50 over a few weeks. Saving an extra £50 a month over the course of a year is roughly equivalent to a £600 increase in your take-home pay.

Sometimes, cutting back on our spending is all that’s required to bring our budget back into safe territory, but it you’ve tried that and failed, it may be time to get professional debt help. For example, debt management is an informal agreement with your unsecured lenders based on what you can afford to repay each month. Before you can enter into a debt management plan with your lenders, you need a personal budget to show them how much you can realistically afford to repay and how long it will take you.

Debt management can give you longer to repay your unsecured debts, with lower monthly payments. While this may cost you more in interest overall, and lowering your payments will affect your credit rating, it can still be the best way out of a difficult debt situation for many of the people who can’t afford their repayments anymore.