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X-Ray production team X-Ray production team | 19:33 UK time, Wednesday, 28 January 2009

From the second she wakes up there's only one thing on Julie Carrington's mind - her debt.

Although she works full-time in the public sector and rents a modest house, she just can't make ends meet.

"I feel as if I'm working every day of the week and I can't even treat myself at the end of the month when I have my wages. It's not nice at the moment, not nice," she says.

Julie's situation isn't out of the ordinary. Her debts are way below the national average of £9,600. She owes £1,500 on her credit card, is up to her overdraft limit of £500, and has to repay some housing benefit. Julie reckons she has £200 a month to spare, but is she correct?

We introduced Julie to financial expert Sue Clay. She's part of a company called Debt Divas, who run a financial website for women. We set her the challenge of sorting out Julie's finances. And after looking at Julie's financial situation, Sue had real concerns.

"She's in a worse situation than she thinks actually", she explained. "She's not provided for essential items of expenditure, so therefore we will find she's constantly turning to the credit card or looking to the bank overdraft".

So when the Debt Diva met our damsel in distress, Sue had a few things to talk through with her. Sue noticed that Julie hadn't included all her spending when she'd drawn up her budget.

In fact she'd forgotten to include quite a few things - including her supermarket shopping. Sue recalculated Julie's budget for her, so it included food and other essentials, and told her how she was really looking financially.

"You actually run a car, but there was no provision within the budget, for your vehicle tax or indeed for maintaining the car. And my calculations are that if we were to allow in the region of £150 a month for food, then I reckon you have nothing left at the end of each month," she said. "So we really are struggling on a very, very tight budget."

If you're drawing up a budget here's Sue's advice. Go through your last three months' statements with a fine-tooth comb. Be totally honest with yourself about how much you spend. And remember to include all essential items.

By drawing up a realistic budget you won't get any nasty surprises at the end of the month, reducing the risk of going into your overdraft, or having to turn to a credit card.

Last year Julie was tempted by an offer of easy credit - not for a shopping spree, but to clear some of her backdated bills. Her choice of lender shocked Sue. Because even though she borrowed only £700, she ended up paying over £1,500 back.

The APR on the loans was a staggering 433%. Sue tells Julie she thinks she could have borrowed at a lower rate.

"You could have actually had a look to see what your credit rating was like. Then you could have established that your credit rating was OK, and you might have been able to walk into a high street bank and got a better source of credit, which would have cost you a lot less in the long term."

There are three credit reference agencies: Equifax, Experian, and Callcredit. It's possible to get a copy of your rating for £3 per company. Check the information stored on there, and if something is incorrect, you can the get the credit reference agency to amend your file, which might give you a better rating.

Next up - it's time to tackle that credit card debt of £1,500.

Julie pays a regular sum of £50 each month to her credit card company, but is being charged £11 a month for payment protection insurance (PPI).

This insurance can be useful for some, but in Julie's circumstances after interest and PPI payments, she's only reducing the balance on her card by £15 a month. Sue calculates that if Julie carries on as she is, it will take five and a half years to pay off the debt.

But she does have one suggestion: "By cancelling the PPI cover, that much more money each month is actually going off the debt. There's less interest going onto the account and you can reduce that repayment term down to three years," she said.

As for Julie's third debt - the housing benefit - Sue sees a way to turn the repayment into a debt that can actually help her. Julie is paying back £40 a month, Sue suggests that Julie asks the council if she can pay £20 a month instead, it would take longer to pay off, but that money could be put towards paying off the credit card.

"If you could halve that housing benefit, therefore releasing another twenty pounds into your budget, and if you were to pay that off your credit card and cancel the PPI, then you could actually clear that entire credit card balance within two years," she said.

Sue also advises that you should always pay the debts with the highest interest rates off first, and don't be tempted just to pay the minimum payments on credit and store cards: the less you pay, the more interest will be added each month.

After the meeting, Julie told us she'd been left with lots of handy tips and the motivation to get back on the right road.

"Now I'm a little bit more confident with my budgeting and how I'm going to organise it and sort my credit card out, going to sort the housing benefit out and hopefully get back on track again."

Since Julie met the Diva, she has started to take control of her debts, she's cancelled her PPI on her credit card, and has begun to pay more each month to reduce her bill. She is also looking to reduce the housing benefit repayments and put that towards paying the debt off as well.

The three credit reference agencies are:

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