Being in debt can be stressful, and problems with debt are affecting people in the UK more and more. In 2016, average household debt in the UK stood at £13,200 according to a study by the Trades Union Congress (TUC) – the highest it has been since just before 2008’s financial crisis.
If you find yourself struggling with debt, you are by no means alone. As the cost of living continues to outpace wage growth, an increasing number of households are finding themselves unable to keep up with essential costs. In this climate, it is early to see how debts can quickly spiral out of control and become unmanageable. Fortunately, there is plenty that you can do to help yourself out of debt – no matter how severe the problem. Below are five ideas for beginning your journey to a better financial future.
- Work out What you Owe
This can be daunting, but if you don’t know exactly where you stand, it is impossible to know the best way to proceed. Take time out to sit down and calculate exactly how much you owe to each of your creditors, and carefully record this.
The experience is likely to be stressful – even emotionally draining – so it might be helpful to ask a loved one to support you.
Knowing exactly what you owe will not only give you a better idea of how to proceed, but also motivate you to make the changes needed to get out of debt.
- Make a Budget – and stick to it!
You could use an app, spreadsheet, or simple pen and paper, but keeping a record of incomings and expenses, and having spending goals to stick to, is vital when making your way out of debt. Actively recording your spending will hold you accountable, and ensure that money doesn’t go missing.
Start by listing each expense – remembering to account for things like travel, and social events. Don’t forget to put aside a small amount each month for emergency expenses. Putting this money towards your debts instead of saving it may be tempting, but this can lead to further borrowing to cover an emergency cost, ultimately slowing your progress out of debt. Having an accurate picture of your income and outgoings will allow you to work out how much you could reasonable pay towards your debts each month.
Small changes to your lifestyle can free up extra money to put towards getting out of debt faster. Perhaps you indulge in regular coffee shop coffees, supermarket lunches, or alcoholic drinks – cutting out a few small expenses can quickly add up. You can make bigger savings by ensuring that you are with the cheapest energy supplier. Online price comparison sites are a quick and easy way to find the best deal for your property, and can save you hundreds of pounds a year.
Sticking to a budget can be a challenge, and your initial spending goals may be overly ambitious, but it is important not to be disheartened, and keep adjusting your budget until you can sustainably manage it. Celebrating smaller goals – for example paying off one debt – is a great way to stay motivated.
- Reduce Repayments where you can
Interest payments and late fees are often the culprit when debts spiral out of control. Being unable to meet minimum payments can incur extra charges, and the longer money is borrowed for the more charges it can rack up in interest.
For example, you might be able to transfer the balance of your credit card to one with a 0% interest introductory offer. Freezing interest payments for a number of months allows you to ultimately pay less for your borrowing, and potentially pay off your debts more quickly.
- Debt Management Plan
If budgeting and saving where you can is having little impact on the value of your debt, organising a debt management plan (DMP) with your creditors could be an option to consider.
In a DMP, your creditors agree to receive reduced monthly payments, based on what you can afford, and your repayments are made over a longer period of time. Some creditors will freeze interest payments during a DMP, but they are not obliged to.
You can negotiate a new payment plan with your creditors yourself, or ask a debt charity or private company to act on your behalf. With a DMP, paying off your debts will take a relatively long period of time, but you will eventually clear your debts through manageable payments.
- Trust Deed
If you live in Scotland, a Trust Deed could allow you to get out of debt in a relatively short space of time. For the rest of the UK, Individual Voluntary Arrangements (IVAs) are a similar solution.
Trust Deeds work by reducing the monthly payments you make towards your debts. However, unlike DMPs, they are a formal solution, meaning that your creditors are legally bound to freeze interest once they agree, and can no longer contact you. To establish a Trust Deed, you must contact an Insolvency Practitioner, who will negotiate affordable payments with your creditors. Trust Deeds usually last for four years, at the end of which any remaining debt you have is written off.
Trust Deeds are recorded on the Register of Insolvencies, and will appear on your credit file for six years, but they are the one of the fastest ways to get out of debt, and get a fresh financial start. Trust Deeds also have the advantage of substantially reducing the total value of your debts.
Being in debt can feel like a weight hanging over your head, and bring a huge amount of stress into your life, but there is always something you can do to get back on track – whether your problems with debt are mild or severe. It is never too early, or too late, to work your way out of debt.