These days it is unfortunate and yet common to find oneself in debt, but rest assured you are not alone. According to the National Audit Office up to 8.3 million people in the UK are unable to pay off debts or household bills.
The average person in the UK owes approximately £8,000, mortgage debt notwithstanding. Younger people also often fall into sizeable student debt, which they have difficulty paying back.
Being in debt can seem all-consuming and overwhelming, and as bills start to pile up many of us wonder where to start. Luckily there are some easy steps that can be taken to help you tackle your debt.
Make a plan
The first step to tackling and eventually beginning to pay it off, is to keep it organised. Begin by creating a spreadsheet which has all of your outstanding debt on it, including the amount of money you owe and to whom.
Also make note of important ‘pay by’ dates, if applicable. Decide how you would like to organise your debt. There are different ways to pay off debt, some pay their smallest debts off first, and slowly move onto larger amounts, this is called snowballing.
Others prioritise debts based off urgency, such as paying rent and bills, before paying off credit card debt. Ideally you should analyse your own debt and see what works for you based off the urgency of what you owe.
If you are having trouble creating and sticking to a plan services such as the Debt Management Plan exist to help you create and stick to payment plans.
Change your spending habits
To begin to cut down on what you owe, one must make significant changes to current spending habits. Alongside your debt spreadsheet, create a budget. Look at your current spending and see what can be cut back.
Things like eating out, getting takeaway, and trips to the cinema, may have to be sacrificed to get you on the path to living debt free. It is important to always live within your means, so sometimes cutbacks will be necessary if you are overspending.
Along with cutting back you may wish to consider selling some of your older, unused belongings. Ebay, Gumtree, and Facebook all allow you to sell your unwanted possessions with ease.
When it comes to selling personal belongings, everything from clothes and DVDS, to furniture and décor, are fair game. The idiom ‘one man’s trash is another man’s treasure’ can help you get your finances on track by decluttering the house.
If you have any direct debits set up, double check that they are all for services you currently use. Many people find themselves continuing to pay for things they don’t need or want anymore because the money simply gets taken out of their bank accounts every month without them noticing.
If this is the case you may also be able to be refunded for some of these services.
In the same vein, take stock of your monthly bills, or phone plan. Have a look at competitors offers, as they may have changed since you originally signed up. Switching phone or utility providers can not only save you money each month, but sometimes companies offer cash incentives for switching.
If you need more support or advice don’t be afraid to talk to a debt advisor. There are many websites and services dedicated to helping those manage their debts, such as the Money Advice Service, Debt Advice Foundation, and National Debtline to name a few. Benefits of talking to a debt advisor include:
- They will not judge your situation.
- They can help you find ways to manage your debts even if you think you have no extra income.
- Give you new ideas about how to deal with your debt.
If you don’t feel comfortable speaking to a debt advisor, or are still looking for new ideas, there are many other ways to start tackling debt.
Debt Management Plan
If you have mostly non-priority debts such as credit card debt, or store card debt you may consider taking out a Debt Management Plan (DMP). A DMP to pay off certain types of non-priority debt. Your DMP provider will help you create an affordable payment plan and they will also talk to your creditors for you.
Whilst using a Debt Management Plan you make one payment a month to your provider who then pays your creditors for you. A DMP can help people stay focussed, by allowing them to make a single monthly payment instead of having to keep track of which debt to pay each month.
Debt Relief Order
You might consider filing a Debt Relief Order (DRO) if you have a low income and do not own many assets. A DRO freezes your debt for a year then writes it off completely if your circumstances have not changed.
Your creditors are likely to agree to a DRO if they believe it is unlikely that you will ever be able to clear your debt on your own. You may only apply for a DRO if you have debts of less than £20,000 and do not own things of value or have savings of over £1000. Because of these strict limitations a DRO is only suitable to those who are in a dire financial position.
Individual Voluntary Arrangement
An IVA freezes your debts for a period and allows you to pay them back over a set amount of time. You can apply for an IVA if you can pay some towards your debts but not as much as your creditors may want.
To be approved for an IVA you must prove that you have a regular long-term source of income. The payment period for an IVA ranges from 5 to 6 years. An IVA can be set up by a qualified professional, and your approval depends very much on your specific debts and circumstances.
These are just three of many debt management options available to those struggling with debt. Please speak to a qualified professional before pursuing any of the routes suggested above as they will be able to properly assess which method might be best for you.
Becoming Debt Free
Sadly, there is a stigma attached to the topic of debt, but an important part of getting out of debt is being able to address it head on. Don’t be afraid to lean on friends or family for emotional support, chances are that they themselves have also been in debt at some point in their lives, and they may even have their own advice for getting out of it.
As you make some of these necessary changes, you will begin to see your debt shrink, and eventually you will be able to live debt free. This will be a huge weight off your mind and your bank account, which will leave you as a more responsible spender in the future. Debt doesn’t have to be a life sentence.