Life is hard for many people at the moment. We are all coping with the lasting effects of the pandemic. Throw in redundancies, rising fuel bills, winter approaching, and it can be easy to get into debt. In this article we look at 5 steps to helping you deal with debt.
Don’t panic. Take a deep breath and face the debt head on. Hiding from your debt will never solve the problem and can make it worse. You may feel fear and shame, but it is worth looking at your debt and accepting that you need help and a strategy to get out of debt. Money Saving Expert, my go-to for many money issues, advises assessing if your outgoings are bigger than your income: is there always a shortage of cash at the end of the week or month? And, are your debts bigger than a year’s income? MSE has lots more advice for those who are in debt but managing to service it as well as those who are in ‘debt crisis’ – when you can’t afford your repayments.
Talk to someone. Sharing your problem may not seem easy but it can be the first step to sorting it and making a plan. Citizens’ Advice suggests you collect information about your debts, work out which ones to pay first. Find a friend, or seek out free professional advice from someone like Citizens’ Advice so you can face the situation you are in. They can offer template letter to help you contact current creditors with the right wording.
Look for ways to increase your income and cut your costs. You may feel that you are spending as little as possible, but there are lots of resources online to help you find more ways to economise. It may not be easy, but it will be worth it when you start to see your debt go down. Family Friendly Working has lots of ideas on this site for increasing your income, flexible and family friendly ways to earn so have a browse and see what you could do in your spare time.
Try snowballing your debts. There are strategies that can help if you have a number of debts in different places. Snowballing: arrange debts from smallest to largest. Pay the minimum payment on all except the smallest debt, which you work hard to pay off. Then move on to pay off the next biggest, combining what you were paying for the minimum payment plus what you paid to pay off the smallest debt. The plus point for this is you can pay off several small debts which can motivate you more.
An Avalanche of debt payment involves picking the debt with the highest interest rate first: this is a smart move as it minimises what you wil pay in the long term, meaning you can pay the whole debt off more quickly. If your small debts are the ones with the highest rates you can combine both methods to great effect, minimising the number of loans you have and the amount of interest you pay.
Consolidate your debts to a lower interest rate loan which achievable repayments. This works best if you have several high interest debts and can combine them all into one loan with lower interest. You still need to focus on repayment, and don’t be tempted to increase your loan at this point, Instead focus on how much you can afford to pay back each month. To find out more about debt consolidation click here.
Repaying a debt can seem like a slog, but it will be worth it in the longer term as you stop giving part of your income to loan companies or interest payments every month: focus on the long term and your hard work in repaying your debt now will be worth it.