If you’re currently in debt or have ever been in debt, you know that it isn’t a good feeling.
More than that, it can be overwhelming in many circumstances and add additional unwelcome pressure to your life and that of your family.
Paying down debt is often seen as ‘difficult’ or even ‘impossible’.
But the first thing you need to realise is that it isn’t. You CAN reduce your debt burden and eliminate it faster than you may think.
And this is the case whether you have a large or small amount of debt.
If you rigorously follow and keep in mind the strategies provided below and importantly take action on them, you can very feasibly remove the pressure of debt that may be hanging over you like a dark cloud.
You may have acquired your debt from a number of sources. Perhaps from purchasing a property, going to university, your wedding, paying mounting bills or anything else.
And you’ve accepted it. It’s there and well, that’s it. It will always be there and you will pay off the interest or the minimum amount and that’s just how it is.
If this is how you think, NOW is the time to change your mindset.
You need to acknowledge your debts but that it ISN’T a fact of life for YOU. It CAN be reduced and eliminated and you CAN be debt free.
Even the fact that you are reading this post is a positive move, so well done.
You have taken the first step to dealing with your debt. You’ve admitted to yourself that debt is not good and is a problem for you.
But you’ve started to find a solution to your problem and having a positive mental attitude towards this is the start of your journey to eradicate debt from your life.
This may sound obvious but it may not immediately be.
Start by writing down all of the debts that you owe and who you owe them to.
Split this out in terms of capital payments, whether they are monthly or quarterly, the interest rate on these loans and how much this equates to in interest as well as the full time horizon for each.
This will enable you to understand the bigger picture of your debt burden.
You will be able to see exactly how much you owe separately and in total, which is important in prioritising what needs to be paid off first and when.
Your list is also not static. It is something that you need to continually refer back to again and again, so that you can adjust and review your position.
If you’re comfortable in using a spreadsheet, then this is an ideal way to write down your commitments and adjust them going forward.
And seeing how much you owe reduce in front of you is a powerful feeling that will spur you on to maintain your progress.
Once you have a clear vision of what debts you have, it is time to understand which ones are more burdensome than others.
If you’ve gone through the process of setting out a financial wellbeing plan, you will know how much money you have for all parts of your financial life – savings, expenses, investment and so forth.
And you will also know how much you are able to put aside to pay off your debts. Only pay off as much as you can afford and don’t weaken your credit rating by sacrificing other positive accounts.
Setting out your debts as you have done will enable you to see how much you need to pay, how often you need to pay it and to whom. You should clearly be able to prioritise your creditors and thus be able to focus on who requires payment first. These will often be those with the highest rate of interest and/or those with the most severe penalties if you were to miss those payments. In general, credit cards will often be near the top, if not the top of your list.
Prioritising your debts in this way will help relieve pressure over the long term.
And then start to make those payments. Even if you are putting down small amounts each month to reduce the initial capital, ensure that it remains a regular commitment.
Whether you have a job or not, you may be entitled to additional government income.
In a February 2020 survey, the UK Department for Work and Pensions (DWP) stated that in the 2017/18 financial year:
These are HUGE savings people could make that could go towards reducing their debt.
There are also many other forms of support:
Simply talking though your personal situation with the DWP will help you understand what you are entitled to.
If you’re serious about paying down your debt, there are always additional ways of making more money. Here are just a few suggestions:
You’re probably thinking that you already have cut back and you can’t do any more.
Well, for the majority of people, that is not true. There’s often something you can cut out.
Those little luxuries all add up.
I’ve heard it so many times. The ‘it’s only £2 per week and that’s not going to change anything’ comments simply doesn’t make sense.
Pick 5 things that you only spend £2 per week on. This could be a couple of chocolate bars, a magazine, one coffee, a pint of beer, branded items, toiletries to name but a few.
Over the course of a year, this would amount to a saving of over £500.
To hit the point home harder, if you get a coffee on the way to work every day, just cutting down to 2 coffees instead of 5 could save you at least £350 over the year.
Now imagine what savings you could make from items costing much more than that over a month? Clothes, one meal out, gym or other memberships, a change of transport e.g. car share to work, switching household utility suppliers, shopping around for a different insurance provider.
If you’re committed, doing just some of the above could save you thousands, every year.
For every payment that you miss, you will have to pay a late fee on top of the interest.
It is also likely that missing several payments in a row would lead to a higher interest rate and potentially additional charges.
Set up alerts on your phone and computer to ensure you’re never late for payments and make sure that you pay at least two days ahead of your deadline to allow the payment to be processed.
Call your creditors and attempt to negotiate a lower interest rate.
You may be surprised the number of creditors who may be sympathetic to your personal situation and be prepared to reduce your interest rate. This would be especially so if you have a:
You have nothing to lose by asking and if your creditor agrees, this could save you significant amounts in interest over the payment period.
I’ve spoken about the benefits of keeping an emergency fund when discussing setting up a financial wellbeing plan, so instead of failing to meet one of your payments, it may be prudent to dip into such a fund.
Setting up a fund is key to providing peace of mind. Even putting aside a relatively small amount will be beneficial when either a debt payment is looming or if it prevents you from getting into debt in the first place.
And once you’ve met your goal of, say a £1,000 emergency fund, set your next goal of £2,000 and so on until you have a pot that will cover most unexpected future expenses, which as a rule of thumb may equate to 3-4 months of your monthly salary.
A debt consolidation loan is simply taking out a loan to pay off all your current debts.
There are a number of benefits to taking out a debt consolidation loan. These are:
However, you need to think carefully about taking out such a loan as there are, of course, drawbacks too. These are:
Borrowing money to pay off debts is often not a good idea and I would tend to stay away from such a strategy. You need to be aware of all the risks before taking out a debt consolidation loan and you should speak to an impartial adviser to get advice for your personal situation and to discuss all options available to you.
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