Tips for Coping With Debt

Debt is a stressful thing to cope with and something that can really impact on your wellbeing. Sorting it out can really help and make a significant difference in how you feel. So, how do you do it – these tips are here to help.

Face Up to What You Owe

 The first step to coping with debt is to determine exactly how serious your financial problems are. Gather your bank statements and documentation, track down any missing bits of paperwork, and total up all of the bills that you’ve ignored over the last few months or years. Make a list of exactly what you owe and to whom, along with the rate of interest. This will give you the information you need to prioritize your debts.

 Set a Budget and Stick to It

Work out a repayment plant and a fixed budget.  There are tools such as the online budget calculator from the Financial Services Authority that can help you to work out your total monthly income, and offset it against your expenses so that you can work out how much will be left over. You should allocate a large portion of this towards paying off your debts (having some savings for emergencies can be a good idea). If you don’t have enough income to pay off your debts and save, then you should look at your spending habits and see if cutting back on luxuries might help you to save money. Stopping the morning latte, and taking a packed lunch to work each day could save you a lot of money over the course of a month.

Switch to 0%

If you have expensive credit cards, you could pay off your debt a lot more quickly if you took out a 0% balance transfer card. These cards will eliminate the interest charges that you pay for a certain period of time, and this will ensure that every penny out of your repayments goes towards the balance itself. To get the most out of this kind of deal you will need to pay off the debt during the 0% offer period, or transfer to another card when the offer period ends. You will need a very strong credit rating to get a 0% card, but if you have issues obtaining one of those cards then a long-term, low rate card could be a viable alternative.  

Before you apply for a new credit card, check your credit rating with the main credit reference agencies. If there are any mistakes on your credit file, correct them immediately.

Check Your Overdraft

If you are regularly going into your overdraft and paying interest for it then you should try to rectify that, either by changing bank or stop using your overdraft. Look for accounts with a zero percent overdraft. Alliance & Leicester offers such a feature on their Premier Account and is giving people incentives to switch. You will have to undergo a credit check when you apply for this overdraft, so if your credit rating is not good you should consider other options.

Personal Loans to Improve Your Finances

 If you have overdrafts and high-interest credit cards then you may be able to reduce the interest you pay and even reduce your monthly payments by taking out a personal loan and consolidating and clearing the balance on your other debts with it. If you can get the market-leading rate or even close to it then you will find that you save money. Standard credit cards are 16-17 percent APR, which is far higher than even an average loan. If you do decide to do this, then make sure that you borrow only the amount that you need to clear your debts, and that you shut the credit cards down when you clear them, so that you aren’t tempted to run up even more debts. Make sure that you can afford the monthly payments that you are signing up for, and be disciplined about making the payments on time so that you don’t end up damaging your long-term credit rating.

Use the Snowball Technique

If you have surplus income to put towards paying your debts off faster, try the ‘snowballing’ technique. This involves picking the most expensive/critical debt and focusing on paying it off as fast as you can while making the minimum payment on the others. When you pay the debt off, you then direct that money to the next highest interest debt and pay that off, and so on, until you are debt free. This technique can be very motivating for some people because they get to see their list of creditors getting shorter and shorter.

Don’t Be Shy About Getting Help

 If you simply cannot see a way out of your debt problem, then there is no harm in seeking professional advice from an independent party such as the Citizens Advice Bureau or National Debtline. There are other debt help charities too. These deal with thousands of debt issues every single day and will offer judgment-free help and advice to get you back on track. Be proactive and write to your creditors to explain the situation, so that you can get help to put together a repayment plan.