Debt can be a cause of much stress and worry, more so for those trying to reduce their debt on a limited budget. A report published by The Money Charity in May 2016 states that people in the UK had total personal debts of £1.474 trillion by the end of march 2016.
However, taking control of your debt will no doubt leave you feeling happier, more relaxed and stress free.
You can start to get yourself debt free by following the 8 steps we have listed below.
Step 1: Start by Acknowledging your debt
To begin with, in order to start reducing your debt you need to acknowledge that you are in debt or a sufficient amount of debt. Many people often acknowledge this very late and at this point they have accumulated massive amounts of debts along with bad credit.
You must admit to yourself that you are struggling and then you can start looking for solutions on how to overcome it.
Step 2: Make a payment plan
This step is very important as it will put everything into perspective for you and give you a clearer picture of how much debt you are in.
Start by listing all the income you have coming into your home followed by all the lenders or organisations you are in debt with.
After this start writing down all your monthly expenses, for example broadband, groceries, utility bills etc.
The main purpose of doing all this is now you have good estimate of how much money you have going out. This allows you to work out how much of your debt you can pay off each month. In addition, this will show you where you cut costs and save more money – a point we will go into more a little later.
Step 3: Pay off the debts that are costing you the most first
This should go without saying but payments that keep a roof over your head or keep you warm at night should come first but after that you should take a good into your debts and see which ones are costing you the most money.
You may come across certain debts that are charging you very high interest rates. Your goal should to be to rid yourself of these debts as soon as possible because the longer they go on, the more they will cost you.
If you’re worried you cannot keep up with your priority debts, you should contact your lenders as soon as possible and explain your situation. They may be able to reduce your monthly payments so you are able to keep going.
Step 4: Change your spending habits
Now that you have your payment plan and have listed all your outgoing expenses, it’s time to change where and how often you spend your money.
You need to realise that you cannot just go out and spend money on things you may have when you were not in debt. For example, if you have a credit card, stay away from stores you may be tempted to use your card.
If you really want to be debt free, you need to reduce your debt, not add on it.
Step 5: Cut costs where you can
This one sounds a little obvious but many people seem to ignore it and continue spending money as they did before. It will be hard but in order reduce your debt you must cut back and make savings where you can.
It’s important to note each persons cutbacks will be different as everyone’s situation is unique but we have put together a few ideas for you to consider.
Save money on your transport – Nowadays running a car can be very expensive. Even if you exclude the big bills like insurance and road tax, you still have to worry about costs like MOT, fuel and general maintenance. Consider taking public transport or even care sharing with someone else.
Pass up on luxuries – An example of this would be, rather than going out and spending £10 on a meal, try getting some ingredients together and cooking a meal at home. Making things from scratch is often much cheaper than buying prepared food.
Another example would be instead of going out to the cinema and spending money on a ticket, a meal and the fuel to get there, rent a movie and watch it from home.
Initially these small luxuries look very insignificant but if you cut back on multiple luxuries and do it properly you will notice an increase in savings without a doubt.
Step 6: Maximise your income: Utilize all benefits you are entitled too
Do some research and find out if you are entitled to any extra benefits and make sure you apply for them. Some benefits you may be able to claim include:
- Jobseekers Allowance.
- Housing benefit.
- Council tax relief.
- Child tax credit.
- Working tax credit.
Step 7: Ask for help
If you are feeling overwhelmed and are not sure on how to proceed with getting your debts in order if may be an idea to go and see a professional who can help you.
For help with money itself you can always ask parents or friends if there is a debt that is costing you a lot of extra money. If you do opt for this be sure to determine a time period to pay them back so there are no complications later down the line.