A debt of any size can cause stress, sleepless nights and strains in relationships. Furthermore, debt can damage credit scores which can impact your financial situation in the future. However, many of us rely on borrowing to make ends meet or to cover costly expenses such as a mortgage. In fact, in the UK, we borrow £80 million a day through loans, credit cards and overdrafts, not including mortgages. This is equivalent to £55,000 per minute, borrowing a total of £300 billion.
So if you’re in debt, what should you do to get out of it?
1. Do Your Sums
It is important to take stock of your finances as well as your borrowing. Before doing anything else, work out the balances of your accounts (all of them) as well as the debts you have and their interest rates.
It is well worth itemising exactly what you spend every single month so you can work out where your savings can come from. There are plenty of free budgeting tools available online to help you view your budget in a simple and easy to understand way.
Make sure to include every expenditure such as amounts charged by your credit card to the cup of coffee you buy in the morning.
2. Search For Savings
Start reviewing your expenditure and work out where you can make savings. It is often easier to start small, such as cutting the daily coffee out of your budget or banning meals out and takeaways for a while in favour of preparing your own food. Consider the cost of your gym membership, is it more effective to opt for a pay as you go service rather than a monthly membership?
Then look for more significant savings with your bills and consider switching suppliers for internet, insurance, gas and electricity.
If trimming your expenses to make savings still isn’t enough to clear your debts, then it may help to speak to a debt advisor on how to make more drastic changes to your budget.
3. Avoid More Debt
It can be tempting to pay off one debt with another or to acquire more debt once you are already in debt. However, this becomes a spiral that is difficult to get out of. Cut up your credit cards to avoid temptation or at least reduce your spending limits on cards to help prevent accidental splurges. Get rid of the temptation and stay focused on becoming debt-free.
If possible, it may help to take up a part-time or temporary job to help supplement your income to get out of debt. If you need to stay at home to look after children, look at freelance roles you can do from home such as being an administrator, virtual assistant or completing surveys and market research for cash.
4. Prioritise Your Debt
Some debts will be more expensive than others, depending on their interest rates. Prioritise the most expensive and most urgent debts. For example, focus on paying the bills your critically need such as electricity, water and the mortgage. After prioritising the life-critical bills, focus on the debts in order of interest and proportion repayments to all debts accordingly.
Make sure to explain your situation to providers if you are struggling to repay debts, they may be able to freeze interest or may extend your repayment terms to give you more breathing space. Try always to meet the minimum repayments required to reduce any negative impact on your credit score.
Stop any savings contributions you make and use the money to pay off debts.
5. Move To A 0% Balance Transfer Credit Card
Moving your debts to a balance transfer card means you can pay off a chunk of your debt without interest. You may have to pay a fee to transfer the debt, but this can still save you money, depending on the interest rates.
A 0% balance transfer card can give you a bigger credit limit, make sure you show restraint and don’t add to your debt. Focus on only paying off your debts and not spending any more than you need to.
6. Stay Motivated
To become debt-free, it can help to split your debt-free challenge into smaller goals to keep you motivated. Focus on small targets such as paying off the credit card, or repaying the first £1000 and reward yourself with a non-expensive treat.
Debt can cause stress and depression, so it is essential to stay healthy, fit and active and put your debt into perspective.
If you find yourself struggling with debt, get in touch with a debt charity for advice and support to help you get back on track.