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When things get tough, as they are right now, it’s tempting to use debt to pay off debt — in other words, a credit card to pay for a store card, a bank overdraft to pay the home loan or maybe even a new unsecured loan to pay off that credit card. This sends you deeper into debt as you kick the can down the road.

But here’s the thing: whoever has loaned you the money in the first place wants, and needs, you to be in a solid financial position. Your current lenders do not want your debt situation to spiral out of control. Now let’s be clear, this is not because they are caring, altruistic institutions. The reality is that bad debts cost lenders money. They have to employ staff to call you, repeatedly, trying to get you to make, and ultimately keep, promises about repayments. The worst case is when they need to take action against bad debts. Courts are expensive, and often the debt ends up being written off entirely or sold to a third-party debt collector at a fraction of its...

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