This article is about our 10 tips and strategies to get you started on a debt free life.
The coronavirus has caused huge disruptions to many households across the UK that we have had to learn to adapt to. Many people’s day-to-day routines have had to change overnight and this has also impacted their finances which can cause incredible stress during an already difficult time.
It is easy to see why effective free debt help is now so important. Many businesses have been affected and have had to close or reduce their working hours which has the knock-on effect of employee wages being reduced or worse, employees being made redundant.
Finding debt relief early is essential as it is difficult to predict how long these disruptions will last but we can make some changes to help control our finances. No debt problems are unsolvable and the sooner you start addressing them the easier they will be to tackle.
Here are our 10 top tips on how to get debt-free and take control of your finances.
Here are our 10 top tips on how to get debt free and take control of your finances.
1 – Recognising you need debt help.
People who are in debt often make the mistake of ignoring the size of the problem, hoping it will just go away.
If you’re always short of cash, you’re constantly close to your overdraft limit, or using your credit cards to pay for your day to day costs as there are no funds in your bank account, then you should think about speaking with someone who provides free debt help and advice.
This will help you understand the debt help plans available to you which are designed to get people debt free.
2 – Find out where you stand.
Start by creating a list of all your credit card, store card, overdraft, loan and mortgage debt. Then check how much you owe on each and what you’re currently paying each month to the debt.
Calculate the total debt you have owing. Then calculate the total monthly payments you have to make to all of the debts.
3 – Calculating your ‘disposable income’.
Draw a line down the middle of a piece of paper. On the left-hand side of the line, list what incomes your household receives each month and the sources of that income. For example, your wages, pension income, benefits etc. Add up your total income.
On the right hand side of the line, make a list of all of your monthly expenses. These will include expenses such as your rent/mortgage, council tax, gas, water, and electricity costs, your travel expenses and groceries etc. List your debt payments separately. Add up all of your outgoings to work out your total expenses each month.
Deduct your total expenses from your total income and this figure will be your disposable income. This will be the money available to pay to your creditors.
4- Prioritise your expenses
Missing payments on certain expenses can have far more serious consequences than falling behind on others. The following payments would be deemed as ‘priority bills’:-
- Your mortgage or rent
- Council tax
- Secured loans
Utility bills, food and then unsecured debts come next. Then ‘luxury’ items such as satellite TV, nights out, clothes shopping and home improvements sitting at the bottom of the list.
If you are unable to service all of these costs without taking out more credit or making cutbacks in your expenses is unrealistic then you may need a debt plan designed to help you become debt free but also helps you manage your essential day to day costs.
5 – If you are unsure what debts you have owing then you can complete a free credit report.
Credit reports are compiled by credit reference agencies – the three main agencies in the UK are Experian, Equifax and TransUnion.
The data in your credit report may be hard for you to understand, but you can use services from the likes of Clear Score and Noddle which help simplify the information.
6 – Separate debts from who you bank with to avoid them ‘setting off’
If you have debt with the same provider you bank with then they have the right to ‘set-off’ and use money held in your current or savings account to pay off debt such as a credit card or personal loan.
Let’s say that you have several missed payments to a loan or credit card with the same bank you bank with and that you have just been paid your monthly wage into your bank account, then your bank is within their rights to use your salary to offset the missed payments of the loan or credit card. This could mean your full month’s income if your missed payments are at this level.
While it’s unlikely to happen, it can and would have a big impact on your personal cash flow. If you are behind on your monthly debt payments then it would be advisable to move yo
7 – Talk to your lenders
As uncomfortable as it may seem if you’re struggling with making repayments on any kind of borrowing, whether that’s a credit card or loan then speak with your lenders. Don’t ignore the debt problems.
If your lenders are unable to help then they may refer you to free debt advice organisations who could suggest debt management plans.
8 – Get free debt advice
If you can’t afford the repayments on existing debt, it’s better to get free advice rather than dipping further into financial trouble.
There are many organisations and charities that offer free, impartial debt help and advice. Such as moneyadviceservice.org.uk. An independent organisation set up by the Government to provide free debt help.
Seeking debt help does not mean you have to commit to any recommendations given to you. But speaking with reputable organisations, who are authorised to provide debt advice will help you understand your choices and which debt help schemes would suit you best.
9 – Finding the best debt relief plan
There are several debt management programs available. They are each designed to help people address their debt problems and to become debt free.
Each option has various benefits that will help manage your finances, such as consolidating debt payments and protection from further action from creditors to help alleviate debt problems.
It’s important to understand the pros and cons of each debt management scheme.
10 – Debt write off does not mean bankruptcy
Going bankrupt is not for everyone but a lot of people think that declaring bankruptcy is the only way to become debt free in a short period of time. It isn’t.
There are alternatives to bankruptcy such as Debt Relief Order (DRO), an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD) for residents of Scotland.
For those who qualify, an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD) can consolidate debt payments into one affordable monthly payment. This is paid over a limited period of time (normally between 4 and 6 years) and any unpaid debt at the end of the term is written off.