Here are a handful of useful tips in dealing with debt
problems.
Make a budget
This will be the vital new plan in keeping your finances on
track while you get yourself out of your money troubles. A sensible budget is
so important, and once you’ve seen the advantages and the peace of mind it
brings dealing with the problem head on you should be able to use the same
method once you’ve removed your debt to prevent yourself from falling into the
same trap further down the line.
If you’ve never made a budget, this is where you start:
Create a written record of all the money you have coming in
and all the money that you spend in order to see exactly where you stand at
each point of the month. Having this information to hand means you’ll be much
more aware of where you stand financially, how much money you have available,
and what you can and can’t afford to spend it on.
Whether you create your budget on paper, use a computer
spreadsheet or even an app, you need to include every regular outgoing, all
bills and payments, plus the amounts you spend on variable items such as
entertainment, travel, clothing and any unforeseen items that come as a
surprise. Eventually you’ll have a much clearer picture of your true average
monthly spend against your monthly income. This will tell you how much money
you should have left over to tackle those existing problems with debt and
cashflow, or what you can afford to save for the future.
Saving for emergencies
An emergency fund is going to be a priority in making sure
you don’t end up back in the same mess you’re working so hard to get yourself
out of.
It sounds like a lot of money but take a look at that new
budget of yours and ask yourself “how much money would I need to survive for 3
months if either I or my partner lost our jobs?” This is a great place to
start. Losing a job is one of the biggest reasons so many people fall into debt
purely because they take their job for granted. 3 months sounds like a long
time but finding replacement employment can take a lot longer than that and if
you start to live on credit cards or an emergency bank loan that debt is going
to build a lot faster than you expect it to.
If you’re covered for those emergencies then they won’t seem
quite as big a problem if you’re in a healthier place to manage them
financially. How would you manage if your car needed replacing? Of your roof
fell in? Or your boiler packed up? All of these things take a big chunk of your
hard earned cash and if you’re not prepared for them they could well be the
reason you spiral into a debt problem you’re going to struggle to get out of.
Cutting back or earning more?
If your new budget highlights that you’re spending more than
you’re earning then it’s time to start making sacrifices and cutting back.
Cancel your credit
cards straight away. There’s too much temptation to use them when you’re
trying to manage without the things you’re used to having so remove the facility
of impulse buying those things you can’t really afford.
Change your spending
habits. Again, your budget will highlight those areas where you’re spending
more than you think. What do you spend on take-away coffees, cigarettes, fast-food,
ready made sandwiches and meals that you could cut out completely for the
time-being and opt for far cheaper alternatives by making your own. How much do
you spend at the pub or dining out each month where you could find cheaper alternative
entertainment at home or at a friend’s house?
Sell things you don’t
use or need anymore. With eBay, Facebook Marketplace, Shpock and more,
there’s no excuse to keep hold of those redundant items around the house that
could be helping chip away at what you owe.
Consider a second job,
part-time work or a hobby that
produces an income. Instead of cutting back on what you spend there are ways of
boosting what you earn. Activities such as babysitting,
gardening, handyman services, evening bar work and more can generate extra
income to help with those nasty bills. Even home services that we’re all
capable of such as cleaning, ironing or laundry are worth considering.
Could you rent a room
out? If you have the space or a spare room then renting a room out is a
simple option to generate a sizeable extra income stream. It doesn’t have to be
forever, only for as long as it takes to get your finances back under control.
Professional help
Help is available for problems with debt at all levels and
there are many different solutions available for each of them. With so much
free advice available it makes real sense to speak to a professional debt management specialist who will be able to tell you the
different options available to you in your individual situation. They are in
the best place to help you find your best way out of your bad debt situation
and how.
Debt management plans
A debt management plan will help you create new terms to the
relationships between you and the people you owe money to. Debt management
plans are set up by a third party specialist who will handle all the legal
aspects of each of your debts and make new arrangements to pay them off at a
cost you can afford over a set term. Your debt manager will arrange to make the
new fee payments to each creditor leaving you only responsible for paying them
one single manageable payment each month.
Consolidation loans
Taking out more debt may sound counterintuitive but if you
are struggling to meet a variety of different debts then taking out one single
simple loan to pay them all off and arranging new terms that are more
manageable than your existing repayments will buy you some much needed financial
breathing space.
You may have to choose a loan with a longer repayment term
in order to reduce your monthly payments but by doing so it could be the
difference in being able to pay off your debt or being taken to court by your
lenders.
Find a better deal
If you’re struggling with debt then there’s a chance that
your credit rating and report will already be reflecting the struggle you’re
in. If you’ve caught matters before they’ve got too far out of hand though then
you could be in a position to find a loan or a credit card with much lower
rates or fees. If you can transfer the debt to an option that will cost you
less there’s one worthwhile saving each month already.
Prioritise your debts
It makes sense to pay off the debts that are costing you the
most first. If you’re paying large amounts in interest or fees then they’re the
debts you should sort out the soonest. That money would be much better utilised
paying towards the capital debt amounts if possible than just paying towards the
rollover interest from month to month.
Writing off your debts
Again, seeking out professional advice in dealing with debt
problems that you know you cannot possibly manage is always the best way
forward. Financial and debt specialists understand your position better than
anyone else and are there specifically to help those who need it the most.
They’ll be able to explain if bankruptcy is your best option
or if a more suitable alternative is available.
There are further options such as an IVA (Individual Voluntary Arrangement) where an insolvency
practitioner will liaise with your creditors to attempt to try and pay off an
acceptable amount of what you owe, could work for you?
A DRO (Debt Relief Order)
can prevent creditors chasing you for money you don’t have for 12 months
and if you’re still not in a position to repay the debt then it could be
written off.
An Administration
Order is a legal contract handled by Enforcement of Judgements Office where
you promise to repay your debts in line with what you can realistically afford
from your regular income.
Never be afraid – or too proud – to ask for help
Advice is free, or when it comes to debt management it
always should be. If a finance operator tries to charge you for an initial
consultation then tell them ‘no thanks’ and find another. It’s important to
find a company who you trust and with their help explore every option in order to
understand all the methods available to you before making the decision on how you
will handle your situation.
