We all look for ways to save money, but when we stray into debt, there are ways to manage the shortfalls.
Sometimes, when the household budget is stretched, a credit card or a personal loan may be required for emergencies, which could be unavoidable.
Keeping debt to a minimum will offer the quickest way to return to positive numbers.
1. List Everything
The first step is to list all of your financial obligations. Load a new spreadsheet, and note down each loan, credit card company, store card, and any other borrowing you may have.
It’s essential to account for all your debt so that you can address it effectively.
2. Consider Priorities
With all your debts listed, it’s time to consider which ones are causing the most pain.
Where are the higher interest rates and the more significant balances? If you can make more than the minimum payment, look to reduce those liabilities first.
3. Construct a Budget Plan
Everyone should have a budget in place, whether they are edging into debt or are keeping away from unnecessary borrowing.
Note all your income and outgoings, and look at areas where you could save on your regular household bills.
4. Address Any Overspending
When you have a budget, spotting areas where outgoings need attention is more manageable.
Household bills are static, but groceries and fuel costs are variable and are areas where costs can be reduced. Remember to diary insurance renewal dates and shop around for a cheaper quote when the time comes.
5. Cancel Unwanted Subscriptions
When compiling that budget, you should check your bank accounts to reveal all outgoings.
They may reveal unwanted subscriptions for shopping or TV streaming services you no longer need. Cancel those ongoing subscriptions to reduce your outgoings.
6. Set up Payment Plans
Debt can quickly increase if you miss payments. Late fees and higher interest rates apply when you do not make that payment on time. You can use a diary, but the best way to ensure you get all your dates is to set up standing orders and direct debits.
Payments leave automatically, so you don’t have to worry about those late fees.
7. Pay More Than the Minimum
Making minimum monthly payments keeps creditors quiet, but it will take longer to pay off your cards.
Try to free up more than you need for debt; your obligations will reduce, and the credit can disappear in a shorter period.
8. Use Windfalls to Clear Debt
While having an emergency fund on hand is advisable, any spare money from windfalls should go towards clearing debt.
An inheritance, an unexpected win, a bonus at work, and other sums can go to creditors who charge more interest than you will earn through savings.
9. Consider Interest Free Transfers
Many credit card providers offer balance transfer deals to new customers to beat the competition in a crowded industry. An interest-free switch for a set period will sometimes be available, subject to a one-off charge.
While the 0% deals are temporary, they are an excellent option to consider, as they will save money on interest charges for that promotional period.
10. Look at Options to Consolidate
Consolidation loans must be approached cautiously, but they can also provide an answer. If you have debts from various providers, consolidating them into one monthly payment can save money and make budgeting easier.
The key is to stay within that budget and not get into further debt.
11. Boost Your Income
Those who are slipping into debt may resent hearing this suggestion. It’s not easy to boost income when employed and on a fixed salary, but many potential side hustles exist.
Selling on auction sites and taking part in market research are two options. Many require little of your free time, and they can be good sources of extra funds.
12. Resisting Temptation
Luxury purchases must pause when anyone enters debt, but the temptation remains. The first way to resist these items is to ask whether you need them.
If the answer is “no,” move on. If you’re still struggling with temptation, it’s a good idea to cut up and dispose of all your active credit cards.
13. Close Unused Accounts
One way to deal with temptation is to shut down any credit card accounts you no longer use.
Spending money in a closed account is impossible, and it will help your credit score, too.
14. Seek Independent Advice
If you have reached a stage where your monthly income doesn’t cover your outgoings, asking for help is a good idea. Debt charities and other third-party organizations will work through your options and help you contact your creditors.
Working out revised payment plans is possible, and some lenders may freeze interest in extreme cases.
15. Establish Your Debt Reduction Plan
Now that you have all this information, it’s time to construct your debt plan. Are you going to consolidate, or are you looking at an interest-free balance transfer? What debts are you going to concentrate on in the short term?
Establish your approach, set your payment plans, and stick to them.
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