Seven tips for dealing with debt
Struggling with debt is one of life's most stressful experiences but the situation will only get worse unless you take positive steps. Here are seven tips for those dealing with debt.
Friday 22 January 2010
If you are in debt, you are not alone. According to financial education charity Credit Action, the average UK household debt is £57,888, including mortgages.
Living in denial will only increase your money woes – as well as your anxiety. As soon as you face up to the situation, paying off your debts may be simpler than you realize.
1. Face facts
Your first step is to discover the extent of your financial problems. Begin by collating your latest bank statements, tracking down any misplaced pieces of paperwork and opening those bills you have been ignoring. Next make a list of how much you owe each company and the rates of interest. Once you have this information, you can prioritise your debts.
2. Draw up a budget
Next, work out how much you can afford to spend on debt repayment each month. The Financial Services Authority's online budget calculator should help with this by tallying your total income against your expenses and calculating how much is left over. You can then put this amount towards your debt repayment every month.
Once you know exactly how much you can afford to allocate to paying off your debts you will be able to devise a repayment plan to suit you.
This is also a good opportunity to assess your spending habits and see if you can cut back on luxuries you could really do without. Simple steps such as taking a packed lunch to work and giving up your morning latte could make a significant difference to your bank balance.
3. Switch to 0%
If you owe money on expensive credit cards, find out if you can transfer your debt onto a 0 per cent balance transfer credit card. These clever cards eliminate interest charges for an introductory period, ensuring that every penny you repay goes towards beating down your balance. However, to make the most of this type of deal you must ensure you repay your debt within the offer period.
Alternatively, if you need longer to repay your debt you may be better off opting for a long term, low rate credit card. Although you will still pay some interest each month, it will probably be at a much lower rate.
Be aware that these cards require an almost unblemished credit rating. Therefore before you apply it is a good idea to obtain a copy of your credit history from one of the UK’s three main credit referencing agencies – Experian, Equifax and Callcredit.
4. Explore overdraft options
Paying too much interest on your overdraft can easily exacerbate your debt problems.
If you think you're paying over the odds for your overdraft service, find out if you can switch to a current account with a 0 per cent overdraft. Right now, the Alliance & Leicester Premier Current Account is offering an interest free overdraft of up to £2,000 fixed for 12 months.
What's more, Alliance and Leicester is also offering £100 cashback bonus when you switch. However, keep in mind it is likely you will need to undergo a credit check before you are accepted.
5. Consider a personal loan
There are times when taking out a personal loan can be an effective strategy for debt management.
If you can get a market leading rate, the APR may well be lower than you are paying with your current credit card. If you really shop around, it is possible to get a rate below 8 per cent. This is much more favourable than the standard 16-17 per cent APR charged by the typical credit card.
It could also make sense to take out a personal loan if you would like to borrow a large amount of money. As a general rule of thumb, loans for more than £7,000 are likely to come with lower APRs than those for smaller amounts. However, be careful not to borrow more money than you need as this could increase the temptation to get into more debt.
As with any financial product, you should always shop around. You're unlikely to get the most competitive rate by approaching your existing lender and accepting their first offer.
6. Snowball your debts
Rather than tacking all your debts simultaneously, you might want to think about a debt-busting technique called "snowballing". This is where you single out one of your debts and then concentrate all your efforts on paying this debt off, while making the minimum repayments on everything else.
Then, as soon as you have paid your first debt off, you get to work on the next debt and continue until you have cleared them all. Psychologically, it can be rewarding to see your creditors become fewer and fewer.
7. Seek advice
If, despite your best efforts, you cannot see a way out of your financial predicament, it's important to get professional advice immediately. Independent organisations such as the Citizens Advice Bureau (CAB) and National Debtline offer free guidance for people who are overwhelmed by their financial problems. The CAB currently deals with 9,300 new debt problems per day.
If you are struggling to meet your financial commitments, it is also worth approaching your creditors to explain the situation and suggest a more feasible repayment plan.
Once you feel as though you have gotten on top of your debts, it's vital to take steps to ensure you don’t end up in the same position again. Try to set aside some of your salary each month so you have an emergency fund to fall back on should something unexpected happen in the future.
Katy Ward writes for BeatThatQuote.com
Phoenix Life: Chance of a refund for overcharged policyholders has risen
10 tips for taking out a personal loan
Has your Premium Bond won the £1million jackpot?
There are 'dark corners' of the investment and pensions industry, says Pension Minister
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
- 1 Bill Clinton portrait features Monica Lewinsky reference, artist admits
- 2 What happens to your body when you give up sugar?
- 3 Delhi bus rapist blames dead victim for attack because 'girls are responsible for rape'
- 4 Have sex with your iPad thanks to the new sex toy no-one asked for
- 5 Average penis size revealed: Scientists attempt to find what is 'normal' to reassure concerned men
New theory could prove how life began and disprove God
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
This is what it's like to be dead, according to a guy who died for a bit
Durham Free School: 'Creationism taught at' free school facing closure
Ukip would cut billions from Scottish budget to fund English tax cuts
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
iJobs Money & Business
£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...
£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...
£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
Day In a Page
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads