10 Ways to Get Out of Debt
Many of us have taken the opportunity to reflect on how this year has been and start to think about the year ahead. We begin forming ideas as to what we want to do and where we want to be this time next year, and about the things in our lives that we want to change.
It doesn’t really matter whether we call these ideas goals, plans or even resolutions. The principle is the same. There are things that we hope we will be able to achieve over the coming year, things that will make our lives better.
Getting Out of Debt
A hidden resolution for many people is to get out of debt… very understandable. We say ‘hidden’ because many people struggling with debt can feel ashamed. If you are in debt, it always seems like everyone else is managing ok, which can make you feel even worse about your situation.
In fact, many people in the UK are struggling with debt. According to Dukes Limited, the average UK household credit card debt was £2,688 for 2019 so far. So, if you are struggling with debt… remember, you are not alone! But if you are not careful, constantly being in debt can become a way of life. You get used to being in debt and expect to live that way. But it is possible to change.
Let’s look at our 10 top tips to get out of debt this year.
1. Stop Spending!
On the one hand, this sounds pretty obvious; and on the other, it seems unrealistic. But the first thing to do when tackling debt is to make sure it doesn’t get any worse. So if you are serious about getting out of debt in 2019 put a halt on all spending apart from the absolute day to day essentials.
See January as the first step towards your financial recovery. If you have to avoid the sales, do Dry January, hibernate at home instead of going out then so be it. Also, make it your resolution not to use credit cards at all this year unless it is a genuine emergency.
2. Get an overall picture of your finances
Many of us are afraid to look too closely at our financial situation but it needs to be done. So the first thing to do is to make two lists. One list of all the debts that you want to repay eg loans, overdrafts and credit cards. Then another list of “assets” ie money you have, for example, savings, investments and gifts.
This will give you an idea of the scale of the problem and help you make an action plan to overcome it. If at this stage your debt seems overwhelming then remember that there are external agencies around – for example, the Citizens Advice Bureau – who may be able to offer some expert advice to help you.
3. Pay off as much debt as you can
The next thing to do is to pay off some of your debt if you are able to do so. It is good to have savings (see Tip 9 below). But most savings interest rates are low at the moment so you would be better to put that money to work and pay off some of your debts.
This can be really hard to do, especially if for example you are saving for something like a dream holiday. But the freedom of being out of debt will be much better for you, and you can then start saving again.
4. Create a Monthly Budget
Now you have a clear picture of where you are at, and perhaps have been able to pay off some of your debt. The next step is to make a realistic monthly budget. This will enable you to see where your money is going and to stop you sliding further into debt.
First, make a list of everything you spend each month. Start with all your regular payments such as mortgage/rent, loan/card repayments, household bills, subscriptions etc. Then add on to your list other essential spendings such as food and transport to work, and finally any other things that you regularly spend money on.
You then also need to make a list of all the money you have coming in every month: salary, tips, bonuses, benefits, help from family – include anything that brings in money, no matter how small. But do not include your bank overdraft in this: it is easy to view this as extra money, but it is debt.
5. Stick to your Budget
Setting up a budget gives you a good idea of what happens to your money each month, but you then need to stick to it. Whether you have done your budget by hand or on a computer or app – it can all look very good in theory but it won’t really help unless you test it out and stick to it.
It is essential to record your expenditure in either a notebook or an app. You may find you are spending way more than you thought on some categories, but you won’t know until you record everything really honestly. This helps you to completely understand where every penny is going.
Many people find that when they make a budget and start trying to stick to it, the numbers don’t add up. But now is not the time to give up!
6. Reduce Spending
It’s time to go through your numbers again. This time you are looking at ways to reduce everything that you spend, to balance your budget.
First of all, check every bill to make sure it is still relevant. Many of us are paying for subscriptions to things we no longer use, or insurances that we don’t need. Make sure to check that you are getting the best deals from all your suppliers on essential bills.
Bear in mind that, planning your meals and shopping carefully for just the items you really need can help save money. Planning meals also helps you to use everything you buy and cuts down waste. Remember, saving money means
Finally, you need to be really strict and cut out any expenditure that is not essential. This may mean living a quieter life for a while, perhaps socialising with friends in each other’s homes rather than going out as much, but it will be well worth it.
7. Increase income
As well as reducing your spending, you need to look at ways of increasing your income. Perhaps, it is the time to start looking for a better job; or alternatively, some extra work that you can take on as well as your day job.
It is also a good time to have a big clear out and sell unwanted goods on sites such as eBay or Gumtree. It may also be worth thinking about whether you really do need any high-value items that you have if they could bring in some money for you.
If you are serious about clearing debt this yea, then you may need to be pretty radical about the way in which you go about this.
8. Debt Consolidation Loan
If you have lots of small debts then one way to help bring them under control is to take out a debt consolidation loan. This is a personal loan that enables you to pay off all your existing debts and end up with just one affordable monthly payment.
The key thing here is not to increase the size of your overall debt. You are not borrowing more money, you are borrowing the same amount of money as you had already borrowed, just organising it differently.
The advantage of a debt consolidation loan is that you only have one monthly payment to organise rather than several that you are losing track of. You can also ensure when you take out the loan that you can afford the monthly repayments and that they fit into your budget.
Even if you have a poor credit history you may still be able to find a lender that will approve a personal loan and help you to make a fresh start.
9. Start Saving
As soon as you begin to get your debts under control, it is important to start saving money. Having some savings behind you enables you to be prepared for any kind of emergency and avoid getting into debt again. It also means that you can look forward to treating yourself to something nice in the future.
Start putting aside some money each month. Ideally, open a separate bank account for this and set up a direct debit to pay into this, so that it is treated just like any other essential bill. Even if you can only put away a very small amount of money each month to start with, it is still worth doing. You will be starting to establish good financial habits that will help you in the future.
10. Think for the Long Haul
Last but not least, it is essential to keep the above tips going on a long term basis. Sorting out your finances is a bit like being on a diet! Once you start seeing some progress it is tempting to ease up on the effort – and before you know it you are slipping back into bad habits and the debts will start mounting up again.
So, to ensure that you not only get out of debt but stay out of debt, you need to reconcile yourself to being in this for the long haul. You need to incorporate the above tips into your regular way of life, and make sure that you are always careful with your money from now on.
If you can do this, then not only should you be able to get out of debt this year but also stay out of it in future.
Thoughts?
We hope that these tips will help you to get your finances sorted out once and for all.