1. Get to grips with how much you owe
The first thing to do is to understand the full extent of your debts. For each debt you have, try writing down how much you owe, the minimum payment you need to pay each month, the interest rate you’re paying on the debt and when you need to pay it by. It may seem scary at first but putting your debts down on paper will be the first step in taking control and working out a plan of what to do.
2. Prioritise your debts
Rearrange your list of debts into priority order by putting those debts with the most serious consequences for not paying and the highest interest rates at the top. This will help you to identify which debts you should concentrate on paying off first (see 8 below).
3. Stop borrowing
It may sound obvious, but it will be harder to deal with existing debts if you keep adding to them. Try to cut unnecessary spending and avoid the temptation of advertised loans which often come with very high interest rates which make it harder to pay back. Breaking the cycle will help to put you in control of your money.
4. Work out your budget
Use a budget planner (Budgeting & Saving – Better With Money) to work out your income and outgoings each month. Include your debt repayments as outgoings. This will help you to identify if you have a shortfall to address or whether you have some money leftover that you could pay towards reducing debt. If you live with a partner and are dealing with your debts together, fill in your budget together.
5. Reduce Outgoings
See if there are any non-essential subscriptions or direct debits you could cancel or whether you could save money on your bills or insurance by shopping around. Could you prepare a food planner and buy only the items you need or use vouchers to reduce your grocery spend? Reducing your outgoings will free up more money to decrease debt.
6. Reduce the cost of debt
Do you have savings that you could use to pay off debt? Could you consolidate debt by moving it to 0% credit cards or cheaper loans? Have you considered re-mortgaging to pay off your debt and spread the cost across the term of your mortgage? When applying for cheap loans or credit cards, use an eligibility checker first, available on most lenders’ websites, to see which cards you’re likely to be accepted for based on your circumstances. If you’re turned down for finance this could negatively impact your ability to get credit in future.
7. Maximise Income
Are you claiming the state benefits you’re entitled to (www.entitledto.co.uk), are you eligible for any charitable grants? (www.turn2us.org.uk). Are you receiving the correct tax reliefs? (Claim tax relief for your job expenses – GOV.UK (www.gov.uk). Maximising your income will enable you to pay off debt more quickly.
8. Pay off priority and high interest debt first
Once you know what you can afford to pay on debt, don’t split your money between your debts equally. Pay at least the minimum required on all but pay as much as you can on the priority and most expensive debts first. When these are repaid, shift focus to the next highest rate debt and continue this until you’re debt free. This way you’ll pay the least amount of interest.
9. Set up direct debits
Direct debits can help to simplify your finances, helping you to budget and ensure your credit cards and loans get paid on time. Missing payments can have a detrimental effect on your credit score which could negatively impact your ability to get credit in future and may push up your rates on insurance products too.
10. Ask for help if you need it
If you have spiralling debt and can’t make the minimum repayments or don’t feel mentally strong enough to deal with your finances, don’t feel as if you have to struggle alone. You can contact one of the non-profit debt counselling organisations shown here. They have qualified debt advisers whose job it is to help you for free regardless of the amount of debt you’re in. 80% of people who seek help for debt feel more in control and happier after doing so.