If your debts seem to be spiralling or despite your best efforts, don’t seem to be going away, the situation can be understandably worrying especially during the difficult times are we currently facing with COVID-19. However, you’re far from alone: at the end of 2019, the average household debt in the UK was approximately £60,000, while average credit card debts amounted to just over £2,500. Small debts, of course, need to be managed to avoid expensive penalties, but large debts are much harder to clear, especially if you can only afford the minimum repayments.
However, the good news is that no debt problem is insurmountable. It may take time, but there is always a way to enjoy a debt-free life, especially if you follow the steps in this guide to how to get out of debt:
Pay more than minimum
Unlike loans, whose monthly repayments tend to be fixed, credit cards offer a minimum repayment amount per month, usually calculated as a percentage of the balance. This means you can choose to pay a smaller amount if you feel that you cannot afford to pay more. The consequence, however, is that settling the debt will take longer, because you’ll continue to accrue interest, in effect wiping out a significant proportion of your repayment. Some credit card balances with even modest interest rates could take many years to repay, reducing your disposable cash for everyday spending.
Calculate how much you can reasonably spend on your credit card debt and target the account that charges the highest amount of interest first, as this is the one that will take longest to pay off.
Negotiate lower interest rates
Interest rates can be burdensome when you’re trying to repay your debts. Credit cards, in particular, can have stiflingly high rates, sometimes costing as much as 35p in every pound that you repay. The higher the interest rate, the longer it’ll take you to clear the debt.
The first step is to discuss your position with your credit card issuer, who will have experienced staff on-hand to consider your situation and to see whether you could be offered a preferential interest rate, even temporarily. You could also transfer some or all of your balance to another card if a zero-interest offer is available. Bear in mind you’ll usually have to pay a fee equivalent to 3-4% of the transfer balance, but this could still save you money and enable you to pay off your debt more quickly.
Try the snowball approach to debt management
An effective approach to repaying debts is the snowball method. You’ll need to make a list of all your debts, with up-to-date balances, ordered from the lowest to the highest. Ensure you make the minimum repayments on all the debts and use any excess cash to repay more than the minimum on the smallest debt. Once this one is cleared, celebrate that you’ve got shot of one debt (without blowing a load of money), then invest the extra cash you’ve gained in the next smallest debt.
Snowballing is a great way to gradually reduce your debts while giving your confidence a real boost that you’re on track to living a debt-free life.
Sell your unwanted possessions
Most people have houses chock-a-block with unused or long-forgotten possessions, from rarely worn clothes to vinyl record collections and outgrown toys to well-thumbed books. Selling your unwanted clutter could generate a useful income that could be invested in repaying some of your debt. Aim for low-cost or free sales channels – Facebook Marketplace, for example, or car boot sales with a low pitch fee – and remember that small profits accumulate quickly!
Boost your earnings
It may not be possible for everyone, depending on their circumstances, but increasing your income could be a good way to get out of debt fast. Seasonal demand for workers, particularly during summer and in the run-up to Christmas, often means short-term, part-time jobs are available and, with many vacancies to fill, employers are less likely to be too picky about who they recruit.
If you’re already in full-time work or have childcare responsibilities, it might be difficult to take on many extra hours, but a couple of evenings or a day at the weekend could raise some much-needed capital that can be ploughed into repaying your debts.
However, in the current climate, it may be best to look for remote freelance employment. Most people are currently working from home, removing the need to travel to work. With the spare time, you could request to work either early or late at your current employment, then utilising the extra time you’ve gained to work on freelance activity.
Only spend on essentials
Evaluating your spending habits can be hard. Everyone enjoys their little luxuries and it’s easy to convince yourself that an extra pair of shoes, the latest iPhone or a subscription to a sports channel are must-have essentials that you simply can’t live without.
Reviewing your household budget means having a zero-tolerance approach to unnecessary spending. You can experiment with different strategies, such as eliminating one or two luxuries for a couple of weeks to see how you adapt, or simply cutting back on your spending in key areas. Sweep up the cash you’ve saved at the end of each week and put it straight into your debt repayments.
Consolidate your debts
Managing several debts, all with different repayment amounts and schedules can be tricky and, if you have a number of credit cards that are charging high levels of interest, paying them all off can seem like a distant dream. Consolidating your debts can give you a fixed monthly repayment that is easier to plan as part of your household budget, reduces the amount you are spending on your debts and gives you peace of mind, as a definite end date is established.
Debt consolidation takes many forms, from a bank loan with fixed monthly repayments to a re-mortgage that spreads your debt over many years at a very low interest rate. Whichever option you consider, make sure you take financial advice from a qualified professional before signing the loan agreement.
Cash in on the equity in your home
Your home is probably your most valuable asset, so selling it could unlock some much-needed equity to be used to settle your debts in one fell swoop. To sell your house for cash should be a last resort once other avenues for paying off your debts have been exhausted but, if you’re seeking a rapid, stress-free solution to a persistent debt problem, it could be a logical decision. With no estate agency or solicitor’s fees to pay, you don’t need to worry about setting aside large sums of money, and you can enjoy the reassurance of a guaranteed sale without the stress that is usually a hallmark of selling your home.
How to get yourself out of debt may seem like a tricky obstacle course to tackle, but the good news is that there is always a solution to the problem. Understandably, however, managing debt can be stressful, so taking some proactive actions will help you feel that you’re making rapid progress in chipping away at your borrowing.
If you opt to sell your house to release equity, feel free to get in touch today to arrange a no-obligation cash offer or give us a call to find out how our service could put your household finances back on the straight and narrow.