The first step is to proactively assess your situation so you can work out ways to regain financial control
How to Get Out of Debt?
Step 1: Figure Out Where You Stand
Start by figuring out how much you owe in total. You can do that by making a list of all your debts including credit cards, store cards, overdrafts, loans, arrears, and other types of debt.
Once you have listed them all, check how much you owe on each debt, what is the applicable interest rate and what you are presently paying towards each debt every month.
To make things easier for yourself, check your credit report. A credit report offers a breakdown of your credit activity and present credit situation.
Counter-checking your debt list against your credit report will help enormously because there may be some debts you lost track of, forgot about or were not previously aware of. Your credit report will also help you figure out how much you owe in total.
Step 2: Budget, Budget, Budget!
Budget and do so regularly – we cannot stress this enough. Think of your household budget as a basic blueprint recording your earnings (income) as well as your expense and spending patterns.
It will help you figure out how much money is coming in each month and what you are spending on. Once you have that down on paper, it is easier to cut unnecessary expenses out of your life, bring down your outgoings and spend any surplus money you have on repaying your debt.
Remember, creating a household budget is not enough: it is just a plan and, as with all plans, you need to properly implement it to gain returns. Sticking to a budget plan would help you ensure that you do not end up spending more than you earn and have enough to pay towards your debts each month.
Step 3: Improve Your Credit Score
Have a low credit score? Reducing the credit limit on your cards, closing unused credit cards, routinely reviewing your credit report and correcting any mistakes on it, paying debts associated with a court order, and explaining any missed payments are all ways to improve your credit score.
By no means are we implying you should apply for more debt to pay back your current debt – far from it. That is a very risky approach that can lead you into a debt trap.
But there are ways to switch expensive debt (with a higher interest rate and charges) for a cheaper option. Before you make a decision though, make sure you discuss your plan and get debt help from an expert.
Step 4: Prioritise Your Debts
You have already listed your debts, now find out which ones are your most expensive debts. Once you’ve done that, prioritise your debts in such a way that you pay back the most expensive of your debts first.
Focus on the debts that are costing you more overall and draining you financially. Attempt to pay them quicker or better yet, shift them somewhere it will be less expensive overall to clear.
This is not the same as applying for a new debt so you pay less on a monthly basis for a longer duration overall. Such shortcuts are not effective because it is almost inevitable you will end up paying back the debt for a longer period, ultimately paying more than you owe right now.
There are other options to smartly manage your money. One way out could be moving your debt to an interest-free credit card offer and paying it back diligently. Consulting a debt help expert to find out what else you can do is also recommended.
Step 5: Pay Your Dues Before Saving Up
Granted savings are vital given the volatile economic situation we have all been subjected to this year. At this point, everyone should strive to create a rainy-day fund that can tide them through emergencies, but there is little sense in saving up if you have an active overdraft or you owe money on your credit card.
The rule of thumb here is to pay all your debts before you begin saving up – and there is a reason for that. The interest you gain on instant access savings accounts is remarkably lower rates than the average interest rate on credit cards.
This simply means that you can save hundreds of Pounds you would have otherwise spent on interest charges if you use your savings to pay back the money you owe.
Step 6: Switch Providers
Did you know that many people in the UK end up overpaying for their energy bills? That’s exactly why you should make it a general rule to review all your providers at least once a year. Doing so can help you reduce your expenses and manage your finances in a better way.
Check everything from your phone bills, internet, utilities (water, gas, and electricity), insurance, and even your mortgage. During this review, see if you are paying for anything extra that you do not even need or use. You should also compare quotes and look into switching providers if you find any cheaper alternatives.
Make this process hassle-free for yourself by using a price comparison website or switching services like Uswitch.
Step 7: Manage Your Energy Bills
If it is becoming increasingly difficult for you to pay your energy bills on time, just know that there is a solution out there for everything.
In case of energy bills, you can talk to your supplier and explain your circumstances to them. Most suppliers assist struggling individuals by either offering them cheaper energy deals or setting up manageable payment plans for them.
The same goes for your water bills but in addition to this, you may even qualify for one of the many government-run schemes that were introduced to help people with arrears. WaterSure. scheme and Water Direct are examples of such schemes. There are even charitable trusts for low-income individuals who are genuinely struggling with making payments on time.
Step 8: See If You Can Apply for Benefits
This step is vital for low-income people and families. Check if you meet the eligibility criteria for any benefits. A lot of people are entitled to benefits that they do not ever claim because they have never considered that option.
Applying for benefits can improve your circumstances and give you a measure of financial relief. However, you need to ensure that you are not claiming for something you should not be receiving as that would be considered fraudulent on your part.
If you’re applying for benefits, remember to inform the relevant authorities should your circumstances change for the better and you are no longer eligible. If you fail to do so, you will be required to repay all the overpayments.
Checking which benefits you are entitled to be not tricky at all, especially if you’re using the right tools. For example, you can use the Turn2Us benefits calculator to assess which benefits you are entitled to and how much you will be getting.
Step 9: Formulate a Meal Plan
It’s quite surprising that the average household wastes 30-50% of their groceries and meal ingredients while consuming the rest.
That is truly wasteful in a world where hunger and starvation are pressing problems. But there are other reasons to check your consumerism too. Think about how much of your food lands in the bin – then reorient yourself to think about it, not as food in the bin but money in the bin (because it is!)
Taking simple steps like planning your meals can help you save money, be less wasteful, and make a difference. Take 20 minutes out to draw a weekly meal plan for yourself, list down all the ingredients you will need, and get them in required quantities when you go grocery shopping.
Formulating weekly, two-weekly, or monthly meal plans for yourself will not only make you more mindful of what you’re eating but also help you cut down on food expenses.
Some of the other steps you can take to that end include adding seasonal produce to your food and food shopping on a full stomach, so you don’t feel tempted to buy any unhealthy snacks or impulse shop.
Step 10: Research Rigorously
If you are struggling with debt repayment, there are plenty of debt solutions you can look into – and a debt expert can help you narrow in on them and select the most suitable one.
But it is also equally important to do your own research and educate yourself before you meet an expert. Background research would help you have an informed discussion with a debt expert.
Step 11: Get Debt Help
If you are having a difficult time managing your finances, understand that you are not alone. We are in the middle of a financial crisis and the economy is devastated. So, many people are struggling with money issues.
If your financial situation is getting worse and you are worried about it, do not hesitate and seek assistance. If you are having problems repaying your debt, seek debt help from an impartial agent. They can go over your financial situation, offer guidance, and help you select the right debt solution for you.