Get Out of Debt - Top Ten Tips

Looking to get out of debt? Feeling overwhelmed by all the letters from your bank, the spiralling cost of interest and ever–increasing repayment demands? If you are one of the many thousands currently trying to get out of debt, Moneyfacts.co.uk has ten top tips to help get you get out of debt and get your finances back in order…

Don’t ignore the situation
Facing up to having a debt problem and making a commitment to get out of debt is probably one of the smartest things you’ll ever do.
Write down exactly how much you owe to whom – get it all off your chest!
Add in the monthly repayments and then work out how much you need to pay each month for essentials such as the mortgage, utility bills and food.
What you’ve got left after paying for essentials will be how much you can afford to pay off each month on your remaining debts.

Prioritise your debts
You need to tackle your most pressing debts first – these are the ones that carry the harshest penalties for default. For example missing your mortgage payements could lead to your home being repossessed.
The severity of missing repayments on the debt should help you work out which ones need to be settled first after paying for your monthly essentials.
Lower on your list of priorities should be credit and store cards, bank overdrafts and hire purchase, but that doesn’t mean you can just ignore them.

It’s good to talk
If you can’t afford to make repayments for all your debts, don’t worry! – It’s not the end of the world. Get in touch with your creditors and explain your situation.
You won’t be the only customer having problems with making repayments and many lenders have dedicated teams to help arrange a personal repayment plan for you.
Remember – lenders will often be open to negotiation, as they prefer to get some smaller regular payments from you rather than nothing at all.

Save money, make money!
Cut back on non–essentials and you’ll be amazed at how much you can save. For example, supermarket own brand products are far cheaper than the more well known brands. Do you really want to waste your money on expensive toilet cleaner?
Keep a spending diary for one month and you’ll be surprised on how much money you waste – magazines, take–away food, cigarettes and alcohol are the usual culprits!
Around 15p out of every £1 we spend on food in the UK is thrown away. Planning meals, using a shopping list and doing a weekly food shop will save you a fortune.
Review all the direct debits coming out of your bank account and cancel the luxuries you can afford to do without – are Sky Sports and Sky Movies really worth it?
Review your home and car insurance, energy suppliers, home phone and broadband suppliers. You could save yourself £100s.

Make sure you’re claiming all the tax benefits you’re entitled to – child tax credit and working tax credit can be worth quite a bit extra each month.
You could also try earning some more money as well. Could you take a part–time job in the evening or weekend, or could you do some extra overtime at work?
Don’t forget selling unwanted stuff on eBay or reclaiming bank charges could help you bring in some much–needed extra cash!

Cut up your store cards
Store cards are very expensive ways of borrowing money and are best avoided if you don’t repay your balance in full each month.
Rates on some of these cards are nearly 30% APR!
Cut them up and try to transfer your balance on to a 0% balance transfer credit card – it could save you £100’s in interest charges.
Check out the latest Moneyfacts.co.uk best buys to compare credit cards.

Use cash!
It’s very easy to fall into the trap of spending on your plastic and forgetting about it.

Studies have shown that paying with cash has a greater psychological impact and makes you think harder about what you’re actually spending your money on.
Try and set a maximum budget each week and stick to it.
Try to avoid pay day spending binges – by all means treat yourself every now and again, but less expensive treats as a reward for sticking to your budget work best!
Take out less cash from the ATM than you usually do – studies have shown that people tend to spend whatever’s in their wallet – this will help you waste less cash each week.

Pay more than the minimum
Only paying the minimum each month means that the debt is spread over many years resulting in you paying more interest.
Paying back more than the minimum repayment on your credit card each month will knock off £100’s from this interest bill and mean that your repay the debt a lot sooner.

Always make sure you make repayments on time – credit card companies levy some pretty hefty fees if you’re late with your payment.
Unsecured personal loans are a cheaper way of borrowing compared to credit cards, so you could save £100’s in interest by consolidating credit card balances into a loan.
Check out the latest Moneyfacts.co.uk best buys for unsecured personal loans.

Switch your credit card
If you don’t clear your credit card balance each month, transferring it to a 0% balance transfer credit card will save you £100’s in interest.
But, don’t use your 0% balance transfer credit card for purchases – your monthly payments go towards paying off the cheapest debt first (e.g. the balance you transferred at 0%) meaning you’ll be paying high rates of interest on the purchases you’ve made.

If you need to have a credit card for purchases, then get different one for purchases and preferably one that gives you cash back.
Check out the latest Moneyfacts.co.uk best buys for low interest credit cards and reward credit cards.

Review your mortgage
Just because you have got into financial difficulties doesn’t mean that you aren’t eligible to switch to a cheaper mortgage to reduce your monthly outgoings.
If you have equity in your home you could also re–mortgage to increase your borrowing and use that extra money to pay off your credit cards, store cards or overdraft.

Mortgages are generally cheaper forms of borrowing compared to credit cards or unsecured personal loans, meaning you can save £100’s in interest.
Check out the latest Moneyfacts.co.uk best buys for the leading mortgage rates.

There is free advice available
The National Consumer Credit Counselling Service is a registered charity dedicated to providing free and confidential debt counselling.
The Citizens’ Advice Bureau also offers free, independent and confidential advice.
The National debtline (0808 808 4000), gives free and confidential advice, and will also send you a free information pack to help you begin to tackle your debt.

Don’t give up!

It takes time and a bit of willpower to get out of debt. You did not get into this position overnight and it will take some time to get your finances back on an even keel. By managing your finances more carefully and sticking to a budget, you are on the road to a more positive financial future and a lot less sleepless nights. Good luck!