How To Manage Debt: 5 Top Tips
Financial worries impact all aspects of life, from the practicalities of providing everyday essentials to the anxiety they cause and the strain they put on relationships. It’s no surprise they’re one of the UK’s biggest causes of stress. But there are plenty of ways to start tackling your money troubles, here are five.
1. Organise and prioritise
First of all, you need to work out what all your incomings and outgoings are so you have a better idea of where you’re overspending and which of your debts is costing you the most.
Once you know your financial position you can start to make changes to your spending and focus on reducing your most costly debts. This could include creating a budget that reduces your spending and household bills, allowing you to put money aside to pay off those debts. As long as your essential costs are covered – mortgage, rent, utility bills and so on – put that money into your more expensive debts. If you have several store cards, address the one costing you the most each month.
If you haven’t already, this is also a good time to make sure you’re paying bills off in full and on time. For example, credit cards are usually free if you pay them off each month in full, but costs quickly escalate after that. Setting up direct debits or calendar alerts for when payments need to be made will make sure you don’t build up unnecessary debt.
2. Get the best debt deal
Stopping your debts growing too quickly is an important step in preventing them from spiralling out of control. Now you’ve prioritised which debts you need to pay off first, could you be paying less for them?
Often the most costly borrowing we have is a mortgage. Are you on the best possible deal? If you haven’t remortgaged for several years you might have moved off the initial discounted interest rate offered by your borrower on to its more expensive standard variable rate. Remortgaging could save you hundreds of pounds each month.
Unsecured personal loans usually have much higher interest rates than secured loans such as your mortgage. So it’s worth looking at ways to pay them off. First of all, if you have savings that are earning less in interest than debts are costing it’s better to pay off the debt while still leaving yourself a cushion for emergencies.
If you don’t have savings, you may be able to increase your mortgage and use the money to pay off expensive debt, although you’ll need to carefully work out if it’s the cheaper option in the long run since the repayment period on a mortgage maybe longer.
You could also consider moving loans or costly credit card debts to a balance transfer card. These usually offer 0% interest rates for a long period of time for a fee, usually a percentage of the transfer amount. If that fee is less than the interest rate on the debt it’s worth doing, as long as you can repay it during the 0% period.
3. Switch those bills
Just as you should switch your mortgage you should regularly check and switch all your bills. Many people remain with the energy, broadband and insurance providers they’ve had for years, but that means they’ll be paying over the odds.
If your initial contract has finished with an energy provider you are likely to be on their more costly standard rate. Equally, when it comes to broadband you’ll be missing out on rates designed to tempt new customers. If you have a mobile phone contract, bear in mind that it covers the cost of your phone. Once the contract is over you’re essentially paying for a phone you’ve already paid for – if the handset still works well you could consider a cheaper sim only deal.
The switching process is usually easy because providers want your business. Also consider paying by direct debit, opting for paperless bills and taking several services from one supplier, which can all reduce costs.
4. Talk to an expert
If you are in financial trouble it’s sometimes difficult to see the wood for the trees. There’s so much advice available online and so many companies and products that claim to be able to help you reduce your debt, it can feel overwhelming.
Talking to an independent debt advisor will help you understand your options and think clearly about what’s right for you. The best place to start is with a debt charity, they can put you in touch with someone who’ll offer free, impartial advice and support on various subjects from budgeting techniques right the way up to insolvency. They’ll also make sure you’re accessing all the government help you’re eligible for. That includes child benefit, tax free childcare and 30 free hours of childcare a month for three to four year olds. If you’re on a low income or a benefit such as universal credit you can apply for a council tax reduction, you may also be eligible for support with mortgage interest payments.
If you are struggling with your mortgage payments the first port of call is your mortgage provider. They can give you a mortgage holiday, extend the term of your mortgage and move you to interest only repayments.
5. Consider solutions carefully
There are several options available if you’ve got to the point where you can no longer keep up with debt repayments. They often involve coming to an agreement with your creditors to pay less than you originally agreed to.
These options include debt management plans, individual voluntary arrangements (IVA) and bankruptcy. Each one has different implications for your financial situation, your credit rating and assets such as your home, which are vital to understanding before making a decision. You will also pay off differing levels of debt. IVAs and bankruptcy are both types of insolvency which will leave you debt free even if you haven’t repaid all you owe, whereas a debt management plan is a long term plan to pay off all you owe.
Another alternative is to sell your home to help you get on top of your finances. Again it’s important to think about this carefully and make sure you have somewhere you can move to. But if selling is the right option and you want to access funds quickly, we can buy your home in just seven days with no estate agent or solicitor’s fees.
Get in touch if you’d like to chat about what we can offer.