1. Get a clear understanding of your financial situation.
Try to make a note of the various debts you have and the interest rates, repayments and any other charges. The CCCS has a useful budget planner tool that will help you do this
Next decide how much money you can afford to pay off your debt each month by looking at your income less essential outgoings (e.g. rent, food and utility bills). It is important to ensure you have enough money left over each month after paying your debts otherwise you will find yourself falling further into debt
Debt consolidation loans can be a good way to reduce the amount of money you are paying out each month, but make sure you get independent advice before taking one on as they can be expensive and may not suit your individual circumstances
If you have multiple debts with different lenders it may be worth considering a debt management plan (DMP) offered by the CCCS. A DMP allows you to make one monthly payment to your creditors, which is then distributed between them for all of your debts
The advantage of a debt management plan is that you will usually be able to negotiate reduced monthly payments and may even have interest frozen on your debts so they don’t get any bigger
If you don’t want to use a debt management plan there are other ways of contacting your creditors and asking them to freeze interest and charges on your debts
Some people who are struggling with debt start relying on credit cards, store cards or overdrafts. This can have disastrous consequences because the rates of interest charged can be much higher than on personal loans and you may not be able to maintain the payments
2. Create a budget and stick to it.
It is really important that you are aware of how much money you have coming in and going out each month. This will help you to work out how much money you can afford to put towards your debts
If you don’t currently have a budget then it may be helpful to use one of the many online tools available such as the Money Advice Service budget planner. This will help you to see where your money is going and identify areas where you can make savings
It is also important that you are disciplined about sticking to your budget once you have created it
If there is a particular month where you find yourself struggling financially then it may be worth considering delaying any non-essential payments until next month. This will help you to avoid getting into more debt and allow you some breathing space
If there is a particular area where you find yourself overspending then it may be worth cutting back on this for the time being, or even cancelling any non-essential subscriptions that you currently have. For example if your grocery shopping costs are spiralling out of control then try to plan your meals for the week and make a list before you go shopping
It is also important to remember that any large purchases should always be considered in the context of your budget. So if you are thinking about buying a new car then it is worth waiting until you have saved up enough money to do so rather than taking out a loan
Sticking to a budget can be difficult, but it is definitely worth the effort in order to get your debt under control.
3. Make a plan to pay off your debts.
If you have more than one debt then it may be worth working out which ones to pay off first by looking at the interest rate and working out how much extra money this is costing you each month. If there are any debts with high rates of interest (e.g. payday loans or credit cards) then try to concentrate on clearing these as soon as possible
You should also consider whether any of your debts would be cheaper if they were consolidated into a single loan. This can help reduce monthly repayments, but remember that if you extend the term over which you will repay them then this could end up costing more in total because of compounding interest charges
Another option may be getting a 0% balance transfer card from another bank or building society. This means that you pay no interest for an introductory period of up to 18 months, giving you time to get your finances back under control
It is also worth being aware that if you fail to keep up with any repayments which are due then this could lead to late payment charges as well as other fees and additional interest
A good way of getting yourself into the habit of paying off debt is by setting aside 10% or 20% each month towards clearing them. You may want to open a separate savings account at another bank where they charge less interest for this purpose.
4. Avoid taking on more debt.
If you are in a situation where you have more than one debt then it is important not to take on any additional ones. This will just make things worse and could lead to further financial problems down the line
If there are essential items which need replacing (e.g. your car or boiler) then consider whether this can be funded through a loan or whether you could save up for it over time. This will help to avoid taking on any additional debt and putting yourself further into financial difficulty
If you are currently using your credit card to pay for essentials such as food or petrol then it is definitely time to stop this. You should try and find an alternative source of funding such as a personal loan from another bank which charges less interest
If you are struggling with debt then it is wise to avoid taking out any more loans or credit cards until things improve for you financially. This will help ensure that there aren’t additional payments coming out of your account each month and put extra pressure on your finances
Sticking to a budget can be difficult, but it is definitely worth the effort in order to get your debt under control.
5. Sell unnecessary belongings to raise money.
If you have any belongings which are no longer used or needed then it is worth selling them to raise money towards paying off your debts. This will help increase the amount of cash available each month and make it easier for you to meet all of your financial obligations
You could try listing items on eBay or Gumtree, holding a car boot sale or even having a clear-out and taking any items which are still in good condition to a charity shop.
6. Negotiate with creditors for lower interest rates or payment plans.
If you are finding it difficult to keep up with your repayments then it is worth contacting your creditors and negotiating for a lower interest rate or even a payment plan which is more affordable for you
This can be a difficult process, but it is definitely worth trying as it could save you a lot of money in the long run. You may also want to consider getting help from a debt charity or advisor who can talk through your options with you.
Remember that we are here to help if you need us contact us, one of our specialist associates will attend you, contact us.
