If you’ve been trying to avoid dealing with the problem of debt by throwing away unopened letters, not answering phone calls from unrecognised numbers and pretending not to be at home when the door knocks, it is now time to confront them.
STEP 1 Recognise that you are not alone the average amount of debt owed in the UK at the beginning of the 2021 was £9,246 per person (Source Money.co.uk). Acknowledge the debt and own up to your mistakes then begin the journey to get yourself out of debt.
STEP 2 Clear off your kitchen table and get all your paperwork out including bills, bank statements and debts, then begin to sort them into piles. Please remember there is free help and support available for you to help you on this journey to becoming debt free do make use of them.(see below)
Remember you must divide them into piles of priority debts/spending and non-priority debts/spending.
STEP 3 List your income and expenditure.
You can do this online using entitledto.co.uk or Turntous.org.uk Tool.
STEP 4 Plan
Begin the plan of attacking those debts most experts say to prioritise the debt with the highest interest rates first. Stop using your credit cards if your have any keep one card for emergencies only. Contact everyone you are in arrears with, make your repayment proposal ensuring that you send a copy of your income and expenditure. Creditors are more likely to consider your offers of re-payment when they see a copy of this document.
STEP 5 Get your credit report.
It is important to check your credit rating and review your credit report this is important as sometimes it may be inaccurate. You can get your credit rating the same way lenders, and landlords do—from each of the three main credit bureaus that report on most consumer credit—Experian, Equifax, and TransUnion.
Check your credit score this is free, although you can only receive your report for free once a year. Clearscore is also particularly good and will provide you with a monthly report also free of charge.
Once you have the report, check if it’s accurate and look at the accounts dragging your rating down. It only takes one or two late payments to lower your credit rating. If you have late payments on all your credit accounts, you may find yourself in the “high-risk” category, even though you are paying the loans down (although not on time). It sounds picky, but banks can afford to be uptight because they have a huge pool of people seeking loans.
STEP 6 Get rid of troublesome accounts and pay down your overall debt on time.
Use automatic payments like standing orders/direct debit to get your debt under control. This will stop your credit rating getting worse and, will improve it over time. If your credit rating allows for it, try to get a larger, low-interest loan, and consolidate all your consumer This will speed up the process of paying off your debt.
You may consider a balance transfer offer dependant on your credit rating from one of your credit cards. This may allow you to pay off debt faster by transferring high-interest debt onto a credit card account that comes with a 0% annual percentage rate (APR) that could last anywhere from approximately 6 to 24 months depending on the offer.
There is normally a balance transfer fee that is usually a flat sum or based on the percentage of the amount you transfer (3% to 5% is typical). Just keep in mind that if you don’t pay off the balance by the time the grace period, you’ll be paying the normal credit card interest rates.
Although it might seem safer to close one or two credit cards so that you aren’t tempted to use them, put them in a drawer instead, because closing cards may hurt your credit score.
STEP 7 2 Shovels system
Whenever possible, double up on payments on your highest-interest debt., doubling up on payments can speed up the payback period. Once you’ve eliminated the highest-interest debt, double up payments on the next-highest debt. This strategy is called a debt avalanche.
With the debt avalanche method, you pay as much as possible toward your highest-interest debt, while making minimum payments on the rest, until all your debt is paid off. If your high-interest debt is weighing you down, this could be a good solution to becoming debt-free.
There is also the debt snowball method This another “do it yourself” debt-reduction plan, where you begin paying off accounts starting with the smallest balances first, while paying the minimum payment on larger debts, If you can get a consolidation loan, doubling payments will make it vanish that much faster.
STEP 8 Don’t close all your credit card accounts down as this may affect your credit score.
STEP 9 Start Saving!
Yes, you can dig yourself out of debt and save at the same time, but it takes planning. Plan to save a small percentage of your income for your nest egg/emergency funds as you pay down your loans. No matter how small every penny counts this will add up over time.
STEP 10 If you have children.
Make sure you open an account for them Purchase a piggy bank allow them to place money in it. Save some of their birthday money think about how much you are spending on activities and luxury items.
The most important thing to remember is that when you take the first steps and seek help with your debt, you know longer have to live in fear, and as many have told me they are able to relax for the very first time!
Take that first step…….