There are plenty of reasons for wanting to become debt free. It could be that you are fed up of making the monthly payments so that you can save that money instead, or it could be that you can’t afford to keep up with the monthly payments. I want to share some tried and tested tips for paying off debt. Whether you got into debt because of an emergency or from overspending, the good news is that with some hard work and clever thinking, you can become debt free.
The first step to getting out of debt is to draw up your budget. You need to get an overall picture of not only your income and outgoings but also the nitty gritty details of your debts. You need to know the outstanding balances, the interest you are paying and what your minimum payments are. You also need to know if there are early repayment fees if you pay back the debt earlier and if you have any promotions such as 0% interest. Typically speaking, credit cards and store cards won’t have early repayment fees, but loans might.
Debts have different priorities, and things like a mortgage, rent arrears, hire purchase payments, gas and electricity bills, council tax, income tax and child support/maintenance payments are priority debts. They are priorities because if you don’t repay them then bad things could happen, such as being evicted, cut off without electricity, repossession of even going to prison. Low priority debts are things like credit cards, your overdraft, payday loans and your water bill. These can still result in CCJs, bailiffs and bankruptcy, so they aren’t to be ignored.
Once you have all of this information then you can come up with a plan for tackling your debts. The good news is that there are plenty of options open to you.
If you have a good credit rating and you can keep up with minimum payments then it will be worth looking for a 0% balance transfer offer. By switching a credit card debt with high interest to a 0% offer you can save hundreds of pounds in interest. This means that every penny you pay off your credit card whilst the 0% promotion is on goes directly to paying off your debt and not towards interest payments. If you don’t get a credit card with a big enough limit for all of your debts it is still worth transferring as much high interest debt as possible onto the 0% offer.
You will often see consolidation loans offered as a way to clear your debts, but there are very few situations where these work out to be for the best. That is because if you don’t address the reasons for going into debt in the first place, getting a loan and then keeping your credit cards open means you will be tempted to use the credit cards and accrue even more debt. If you are looking to get a loan to consolidate your debts but make sure the loan is cheap and never get a secured loan (which is usually secured against your house) to clear off credit card debts.
If you cannot afford to keep up with the regular monthly payments then there are a few options open to you. You could enter a Debt Management Plan, file for bankruptcy, get a Debt Relief Order or an IVA. To get advice on your own circumstances you can speak to Christians Against Poverty by visiting www.capuk.org or ringing 01274 760720.
pay off your debts – Start a snowball
Snowballing might sound like a fun winter activity, but it is also a great way to clear your debts. After making your minimum repayments towards your debts, throw extra money at the debt with the highest interest rate.
Where to get extra money to pay off your debts
The more money you can repay towards your debts then the faster you can repay them. You can get more money to pay off your debts by cutting back and earning more money. Cut back by looking through your regular Direct Debits and see what you can live without; by meal planning and by making small changes that save you money every day. You can make money by doing overtime or taking up a side hustle. Aim to throw every spare penny at your debts and you will see them come down in no time.
Tackle your debt 1% at a time
A trick that I use all the time when I have a financial goal is to divide the total by 100 and then aim to save 1% at a time. For example, £1,000 divided by 100 is £10, so you just need 100 ways to find a spare tenner. With a smaller more achievable goal you will be amazed at where you can find the money.
Get your free 1% at a time printable
This simple trick helped us to clear £15,000 worth of credit card debt. Simply take your savings goal and divide it by 100 to get your 1% at a time. Once you have saved or earned 1%, cross it off. Download this free printable to keep you on track.
