Personal Borrowing Problems? 5 Ways to Become Debt Free This Year

Written by Karen Bryan

£10 and £20 notes 240The scale of the UK’s debt problem is huge. Latest statistics from the Money Charity make for frightening reading – just a couple of sample facts are that the average total debt per household, including mortgages, was £54,080 in January and that figure is forecast to rise to £94,481 by early 2021. There’s more here.

However, we can change. So if you’re ready to remove that millstone of owing others from your neck, but wondering on the right approach, here are five actions to take now to get rid of those debts:

Stop Spending More Than You Earn

The number one rule in reducing debts is to break down exactly what money is coming in and going out, and hope that the former is a greater amount than the latter. A bank statement should tell you the simple answer.

The steps below tell you how to tackle debts, but making money is a different ball game – the options include changing job or working for longer or part-time, or selling items. None of these will solve the long-term problems though.

Debt Plan

Balancing the money coming in and the money going out is not easy. The advice is normally to pay off as much as you can each month, but without leaving yourself unable to rescue your finances if things go wrong by diving back into credit again.

There are many companies who can assist those in debt through management plans. This tool from PayPlan is useful as it helps users to manage their finances and assess where they need to improve – by prioritising which debts need to be paid early and those that can be put to the back of the queue. Consolidation or shifting debts using a balance transfer card to a lower interest rate is a logical place to start, swiftly followed by setting up direct debits for those debts that you keep forgetting to pay, such as…

Banishing Bills

Organising and paying bills is a key part of the debt management strategy. If you can’t afford to pay off a bill in one go, don’t just bury it in a pile of paperwork; calling the utility company, bank, or other debtor early is a good start, explaining the situation. You may be able to pay the bill in instalments, rather than falling into arrears and picking up black marks on your credit score.

Deleting Costs

Pruning out the luxuries is tough, but if you can realign your financial situation and rescue it, those luxuries could soon return – because you won’t be shelling out money on interest any more. Magazine, Netflix and satellite subscriptions, cinema and restaurant trips, downloads and more are all up for review.

One last item you might consider removing is monthly payments to charity, which should weigh heavily on your heart, even if improving your accounts is a financial emergency. As with luxuries, aim to start paying the charities again by a set time.

Planning For the Future

If you’d planned for the future before, you probably wouldn’t have intended to be in debt now. You probably wouldn’t be struggling for money, or weighing up what to scrap from your finances, or wondering why your account never seems to end up in the black.

However, that was then and this is now. From now on, you’re going to make aims to shore up your finances incrementally and in stages. You’re going to set dates for certain landmarks, for a month or six months or two years, and you’re going to strive to achieve things by those dates. The holiday, the car and the trinkets could be yours, but the satisfaction and self-belief definitely will be.