If you’re deeply in debt, the future may seem very bleak. However, facing your financial situation and getting the right help needn’t be a nightmare.
Here’s our step-by-step guide to getting back into the black.
Get your debts organised
First, bite the bullet and work out exactly how much trouble you’re in. That means opening all bills, comparing your outgoings with your income and drawing up a clear budget.
These can be very hard things to do, because when we’re in debt, many of us try to ignore the fact. However, it really is the first step on the road to financial recovery.
Let your creditors know
If you think you may not be able to make your next debt repayments, let your creditors know as soon as possible.
Your bank or building society is far more likely to be understanding if you contact them before a cheque bounces, or an overdraft limit is exceeded.
They may even be able to re-organise your debt to make repayments more manageable. For example, your bank may be able to reduce your monthly repayments for a certain period of time.
Squash your interest payments
To clear your debts as quickly as possible, it’s important you bring down the level of interest you’re being charged.
If you’re currently paying interest on credit card debt, you may be able to do this by shifting that debt onto a card offering 0% interest on balance transfers.
Just be aware that this is a short-term fix to buy you some breathing space, not a permanent solution: the interest-free period on each of these cards is fixed, and doesn’t last forever.
Reduce your spending
Next, you need to bring down your expenditure by ditching all non-essential spending. However, it’s important you set realistic goals in this respect, or the chances are you won’t stick to them. Sometimes it also helps to give yourself small ‘rewards’ in return.
For example, you could cancel a pricy magazine subscription, but treat yourself to buying a single magazine every couple of months instead.
Financial experts are always telling us we need to save more. The one exception to this rule is those people who are already in debt.
It’s generally not a good idea to keep saving while you’re in debt, because the interest you pay on those debts will usually be higher than the interest you earn on your savings.
So, channel your savings contributions towards paying off your debts, and start saving again once they’re all cleared.
Tackle your debts in the right order
To make clearing your debts as cheap and easy as possible, you also need to tackle them in the right order.
Start by paying off the most ‘expensive’ debt first (the one with the highest interest rate) and just make minimum payments on the others.
Once this debt is cleared, move on to the next most expensive one – always keeping up the minimum payments elsewhere. Keep going until all the debt is gone!
What NOT to do
Don’t pay money to any firm that offers to negotiate with your creditors on your behalf, or get your debts written off. These companies are out to make a profit at the expense of vulnerable people.
Instead, get help from one of the free debt advisory services run by charities or the government. National Debtline, the Consumer Credit Counselling Service and Christians Against Poverty are all good places to start.
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