How to get out of debt

1) Find out where you stand

Start by listing all your credit cards, store cards, overdraft, loans and other debts. Then check how much you owe on each debt, know what interest rate you are being charged, and what you’re currently paying each month to each.

A essential tool to check your credit report as this can show some debts you’ve lost track of, how much you owe, and some debts you’ve forgotten about or may never have been aware of.

If you’re ready to get out of debt, consider these tried-and-true methods:

2) Make a household budget and reduce your outgoings

A household budget is a plan that summarises your earnings and spending habits, so you have a clear idea of where your cash is going and where you can make changes to reduce outgoings and boost the money you have to pay down your debt. If you stick to it, a budget plan will help you make sure you don’t fritter away more than you earn and potentially help you work your way out of debt.

3) Try to improve your credit score

If your score is low then there can be ways to improve your credit rating. We are not suggesting trying to borrow your way out of debt, but you may be able to swap expensive for cheaper debt.

4) Figure out which are your most expensive debts.

Once you know this, start with the most expensive ones; try to pay them back quicker or better still move them somewhere where it will be cheaper overall to clear. This is not the same as taking out a new loan so you pay less each month over a longer period, so eventually, repaying even more. Look to switch debt to interest-free credit card offer and do maths as to where to intelligently use your money.

5) Pay off debt before saving

While it’s good to have a financial cushion for use in emergencies, there’s little logic in having savings if you also owe money on a credit card or overdraft. The rates available on the best instant-access savings accounts are significantly lower than the average interest rate on a credit card. Using your savings to pay off your borrowing could save you hundreds of pounds a year in interest charges.

6) Review all your providers

Do a complete review of everything. Phones, internet, insurance, gas, electricity. The lot. Your mortgage if you have one. Check you’re not paying for something are barely or are not using. You should be doing this at least once per year.

Use a switching service like Uswitch
or one of the other comparison websites; see what the the Money Advice Service says about comparison websites.

7) Get help with your energy bill

If you are finding it very difficult to manage your gas or electricity, you may be able to get help with your energy will. and also get help with your water costs.

8) Check if you are eligible for benefits

Many people and families are entitled to benefits there are not receiving as they’ve simply not looked into it.

Conversely, make sure you are not claiming for something you should not be. If your circumstances have changed; eligibility ends then; not when you get pulled up for not informing the correct bodies or then you are required to reapply. You will have to repay all overpayments.

Take a look at the Turn2Us benefits calculator for guidance on what you should be getting.

9) Create A Meal Plan

How much of your grocery shop ends up in the bin? If you’re typical of the average household – it’s likey to be in the range of 30% – 50%. Think of it as not the food in the bin, but the money in the bin.

Draw up your own weekly or two-weekly meal plan – you’ll feel the health as well as the financial benefit.

Food shop on a full stomach. It reduces the temptation to snack, to make unhealthy choices and to buy food you don’t need.

10) Do your own research online before speaking to a debt advisor

Educate yourself as to the different options out there, have an idea as to which is most suitable for your situation.

When speaking to a debt advisor, be aware of how they are getting paid. Most of the organisations branding themselves as charities are funded by creditors; in theory voluntarily so they can say the financing they receive are ‘charitable donations’; in practice, they are paid to collect debts. These companies are more likely to push you in the direction of debt management, where the creditors get every penny back, rather than an insolvency solution where they may get only a part or nothing at all back.

Conversely, if you speak to an insolvency practice, they would be more inclined to prioritise exploring the possibility of an IVA.

If you come to the conclusion that an informal debt management plan is right for you, then pick one of the non-fee charging debt management providers.

Please call 0800 014 9675 or email ask@debtguardians.co.uk with any questions or if you require some assistance with your debts.