Here’s our step-by-step guide to returning in to the black.
Get the debts organised
First, bite the bullet and work out exactly how much trouble you’re in. That means opening all bills, comparing your outgoings along with your income and creating a transparent budget.
These could be very difficult activities to do, because when we’re struggling with debt, many of us make an effort to ignore the fact. However, it is actually the initial step on the path to financial recovery.
Let your creditors know
If you think may very well not be able to make the next debt repayments, let your creditors know as soon as possible.
Your bank or building society is much more apt to be understanding if you contact them before a cheque bounces, or perhaps an overdraft limit is exceeded.
They may even be capable of re-organise your debt to create repayments more manageable. For example, your bank might be able to lower your your repayments for a certain time period.
Squash your interest rates
To pay off your debts as soon as possible, it’s important you bring down the amount of interest you’re charged.
If you’re currently paying interest on credit debt, you could be able to perform this by shifting that debt onto a card offering 0% interest on balance transfer promotions.
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.
Lower your spending
Next, you should bring down your expenditure by ditching all non-essential spending. However, it’s important you set realistic goals in this respect, and the chances are you won’t stick to them. Sometimes it likewise helps to give yourself small ‘rewards’ in return.
As an example, you could cancel a pricy magazine subscription, but treat yourself to buying a single magazine every couple of months instead.
Financial experts will almost always be telling us we need to save more. The one exception to this particular rule is those people who are already struggling with debt.
It’s generally not recommended to keep saving while you’re in debt, since the interest you pay on those debts will often be higher than the interest you get on your savings.
So, channel your savings contributions towards paying down your debts, and start saving again once they’re all cleared.
Tackle your debts in the right order
In making clearing your debts as cheap and easy as you possibly can, you also have to tackle them within the right order.
Begin by paying off the most ‘expensive’ debt first (usually the one with all the highest interest rate) and just make minimum payments around the others.
Once this debt is cleared, move on to the next priciest one – always keeping up the minimum payments elsewhere. Keep going until all of the debt is gone!
What NOT to do
Don’t pay money for any firm which offers to negotiate with your creditors as your representative, or get your debts written off. These businesses are in the market to make a profit at the cost of vulnerable people.