Last week’s decision by the Bank of England to raise the base rate to 4.25 per cent will have sent shock waves through the millions of households who owe money.

According to the Bank of England, consumers borrowed an extra £1.6 billion in January compared with £0.8 billion borrowed in December. This was split between £1.1 billion borrowed on credit cards and £0.5 billion on other types of credit through other forms of consumer credit.

Richard Lane, Director of External Affairs at StepChange Debt Charity, said: “There’s only so much people’s finances can cope with, particularly for those on low incomes, and with financial resilience waning, more people may be forced to turn to credit to make ends meet over the coming months.”

According to new research by the charity, almost one in six people have just £20 or less disposable income each month after covering bills and essentials. To help, it and other advice charities such as the Paperweight Trust, National Debtline and Citizens Advice offer free advice and solutions.

Talking to them doesn’t affect your credit rating and they won’t tell your lenders you are struggling unless part of a pre-agreed plan. Make sure anyone you turn to is regulated by the Financial Conduct Authority though.

Depending on how serious the debt is, there are a number of options available. The first thing to do is to make a budget listing all your income and outgoings to see if there are any areas to save money.

For example, can you get a cheaper phone or internet contract or move insurers to a better deal for home or car cover? Do you have assets you can sell to cover the debt?

If the answer is no, then one option is to apply for Breathing Space, a Government initiative which gives you legal protections from creditor action for up to 60 days. You do still have to keep making payments as you can afford during this period, but it gives you time to come up with a long-term solution.

Talk to your creditors, either alone or with the help of the debt adviser, preferably before you start missing payments. Utility firms run schemes for people in hardship and many lenders will look to put in place payment holidays while you get back on your feet.

ygfOther options include a Debt Management Plan (DMP), whereby you pre-agree reduced payments to the firms you owe money to, make one payment to the debt manager and they pay out on your behalf.

Alternatively in England, Wales and Northern Ireland, an Individual Voluntary Arrangement (IVA) lets you make manageable payments to your creditors over a five or six-year period and any outstanding debt is then written off. In Scotland a Debt Arrangement Scheme (DAS) allows you to repay at an affordable rate and freezes further interest.

If these aren’t viable then you can apply for bankruptcy, but it is worth exploring other options first as it will have a much larger impact on your credit rating going forward.