These days, being in debt is almost considered normal. The average UK adult has non-mortgage debts of several thousand pounds, and pays interest rates well in excess of 10% on what they owe. While the miracle of compound returns can be a fantastic thing when you're saving, it works in reverse when you're borrowing, which explains why debts often spiral out of control.

Credit cards are a major culprit here. While it's useful for borrowing money, if your card has a high interest rate and you can't afford to pay off much each month, then the credit card company is getting the benefit of compound returns - and who wants that?

Savings vs. debt: the knockout round

A common mistake for well-meaning but misguided savers is to carry debt on the credit card while accumulating savings in the building society. Unless you have a 0% card, these are good intentions, but bad maths: with savings earning, say, 5%, but debts costing 15%, there's a shortfall of 10%. It makes far better sense to use the savings to pay off the debt and start again from scratch with savings that are earning real returns.

Beware the lifelong debt!

It's impossible to overemphasise dangers of debt. Even small, seemingly harmless debts can quickly grow out of control. Take a credit card debt of £1,500. If you're charged 1.5% a month and only ever pay the minimum monthly requirement of 2% of your outstanding balance, this bill will take an astounding 37 years to clear, and at the cost of thousands of pounds of interest!

If you have non-mortgage debts, paying them off should be your top priority. Only once this is done can you really start building up your finances for the future.

Don't panic if your debts are large. The Fool has plenty of advice, and you probably have more rights than you realise if lenders are knocking at your door and your finances are causing you sleepless nights.

A final note on taming the evil beast that is debt

"But what if there's an emergency?" One more time now: carrying a credit card balance in one hand and an emergency fund in the other makes no sense and will only lead you further into debt. All spare cash should go to paying off your debt; your emergency, if it ever comes to pass, will fit nicely on your credit card.

10 Steps to Financial Freedom