Dealing with debt is not a fun task, but the sooner you assess your arrears, the quicker you’ll be able to get on top of your finances. We’ve compiled a list of tips you can follow to turn your financial standing around – read on to find out more.
Make a budget – This may sound simple, but working out your finances can, in fact, be much tougher than it first seems. You should include mortgage or rent payments, utility bills, spending on food, toiletries and things like TV licensing and satellite provisions, not forgetting little extras like snacks from the supermarket, a daily newspaper or term-time payments for the kids’ school uniforms. You might be surprised by how much you spend on unnecessary extras and how little you pay off your credit cards each month in relation!
Work more – If you’re struggling with debt and currently only work part-time, consider increasing your hours to make a little extra income. If you don’t already have other responsibilities that take up your time, it can be productive to get a second job, or even turn something you love into a money-making scheme. If you have a dog, consider walking neighbours’ four-legged friends for a fee. Or, if you’re a dab hand at knitting, sell some of your wares on auction websites and at community fairs to generate some additional income.
Settle your debts – If you’re at risk of defaulting on payments, it’s wise to get in touch with your creditors to see if you can settle your debts with a lump sum. While they don’t have to accept the amount you put forward, they may do if they know they might not get regular payments because of your financial situation.
Avoid getting into more debt – Credit card debt may be something you leave largely unchecked, simply making a minimum payment each month, but you should avoid overusing plastic if you can. You might not be aware of how much you spend on your credit cards but, if you’re prone to shopping sprees, it’s a good idea to start leaving the cards at home or even cutting them up to avoid temptation.
Be realistic – When assessing your finances, be realistic about what you can and cannot afford. If your debts are spiralling out of control and you’re worried about how you’ll manage, it might be time to think about enrolling on a debt management plan, or even opting for an individual voluntary arrangement (IVA). A debt management plan entails paying reduced sums of money to your creditors over an agreed period of time and is worked out after your other expenses are taken into account. Meanwhile, an IVA is an alternative to bankruptcy that will see your debts written off eventually, but will impact on your ability to get credit in the future.
Dip into your savings – If you have savings, you might as well use these to pay off your debts. It’s a false economy to generate a little bit of interest on your savings if you’re still being charged interest on debt. You might also be asking yourself how your retirement savings could help, as well questions like ‘can I sell my pension?’ If you haven’t reached retirement age, you can tap into your pension pot early and use the money to pay off outstanding debts. Bear in mind, however, that this can incur fees and will leave you with less for your retirement.
Consider equity release – An increasingly popular way to generate money when it’s needed is through equity release schemes, which allow you to use some of the capital tied up in your property. You can opt for a lump sum or a stream of steady income for a variety of reasons, but the money you use will need to be repaid at some point – usually when the house is sold.