Undoubtedly, personal finance is a slippery subject. A huge mountain of debts may be painful for your finances. Each one of us may adopt different debt reduction strategies to chip away the unpaid sum of money that we owe. We’ve collated some of the best ways to help you gain control of the debts.⭐Debt Management ⭐Financial Tips
Debt – part of our lives that none of us wants. Emergencies, unexpected expenses and lack of savings pave the way for borrowing money. While borrowing money is not a wrong decision, but taking out more than you can afford can certainly turn your financial life upside down. And after a few years, we stare at the high pile of debts that we have accumulated over the years. We all know it isn’t easy to get out of debt if we are stuck knee-deep into it. Depending on our situations, we can come out of it within a few months, while some of us may take a few years to become debt-free. Whatever is the case, remember, that it is not impossible to get rid of debt.
Let us take a look at the top 30 tips to help you keep the level of debt under control.
1. Evaluate your financial position
It’s the first and foremost thing that you need to perform to understand where you stand. Analyse your financial circumstances as that will help you for preparing your debt relief plan. Start by creating a list of all the debts that you have (existing). Include everything that you owe in the list – credit card debts, personal loan debts, overdraft loan, mortgage debt, and store card – everything. Once you’ve prepared the list, calculate the total amount that you “need” to pay every month towards these. And then evaluate how much you are currently “paying” towards it. Find out how much more you need to pay to cover all the repayments.
2. Prepare a budget
We find this to be the most boring task ever. But budgeting plays a significant role in financial planning. A budget is an essential tool that shows you how much you earn and how must you spend. You can make changes in your spending habits accordingly. Overspending is one of the reasons that lead to money problems. A proper budget curbs overspending and help you stay in control.
3. Check your credit report
72% of young people aged 18-24 have never checked their credit report according to research by Experian. And 20% of people who had checked their reports – did it 3 years ago. To bring your finances back on track – you need to check your credit report at least once a year. There may be mistakes on your report, which will impact your application for financial products. Also, it will influence the interest rate that you get. Check your credit report and if you find any errors, contact any Credit Reference Agencies to get that fixed as soon as possible.
4. Improve your credit score
You must have heard about a thousand of ways to improve your score but you got so confused that you didn’t implement them. A credit score is a vital part of your financial life. It shows your loan affordability and creditworthiness that leads the lender to decide on your application. A low credit score will harm your finances. Improve your credit score as it will make half of the things easier for you.
5. Pay more than the minimum
If you have extra money everything, then start using it towards repayment of debts. It may take a good number of years if you keep paying the minimum balance every month. To get rid of debt fast, you need to expedite your payment process. Make room for extra payment in your budget and pay as much extra as you can afford. Even if you can manage to pay an additional amount of £20 each month, do not take a back step.
6. Reduce your outgoings
When you are looking to pay off your debt fast, you will have to make a variety of changes in your life. And reducing your outgoings is just one of them. Take a deeper look at your finances and distinguish between the essential expenses and non-essential ones. For example, you can do without that coffee from your favourite coffee shop every morning. Prepare your coffee at home and save those extra pounds to pay off the debt.
7. Stop saving money
No, you didn’t read wrong. Pay off your debts rather than saving money. A financial cushion is important to minimise a strain but what good it will do if you have unmanageable debts? The interest rates that you get on your savings are much lower compared to the interest that you have to pay toward the debts every month. Use your savings to repay the debts. Once you pay off the debts, you can start building your safety net again.
Read: 8 Money-saving Tips
8. Don’t take on new debts
You will have to be frugal for some days. Do not apply for any new credit cards, loans, overdrafts, if you are already struggling with debt. If you continue adding new debts to your list, it will make things worse. Your progress may be hindered and you may go back to ground zero. Don’t get tempted for taking out new debts. Remember, the more you add, the more you decelerate the process.
9. Lower your interest rate
Your lenders should be the first point of contact when you are facing difficulties with the repayments. They will offer you a solution that works best for both of you. You can contact your lender and discuss your situation with them. Ask them if it is possible to lower the interest rate at which you are currently servicing the debt. If they agree, you will feel the sigh of relief instantly. Talk and let your lender know your concerns and find out an amicable way to deal with the situation.
10. Cash-out your retirement fund
You may consider withdrawing money from your retirement fund only in extreme cases. You may have to pay an additional amount if you will be taking money out from the fund early. So, know about the costs that you will have to bear. Start putting money back into your retirement funds after you successfully clear off the debt shelf. You will need to have a strong strategy or else it could worsen your condition. Talk to an expert before making such decisions.
11. Earn more money
We are living in a digital world today. You can do a variety of things to earn some extra money in your leisure time. You can take up any freelancing work even if you’re a beginner. Choose a niche and be clear on what you will offer to your clients. Ensure that you pick something that you love doing. Register yourself on multiple websites where you can find work and level up your skills to start earning more. Use that money to pay off the debts – it will not only help in eliminating debts, it will also hone your skills.
12. Sell off unused items
We get gifts round the year. Christmas, New Years’, birthdays. But we hardly ever use some of them. There will be a lot of unused items lying around our homes that we hardly even notice. Start clearing them off. It’s simple – if you don’t need something, sell it off. You can sell any unused furniture, books, clothes that are in reasonable condition. Post your ad on sites like eBay and Facebook.
13. Save money on groceries
Be careful whenever you are out for shopping. We tend to spend way more than our budget sometimes without even realizing. Try getting most of the things during a sale to reduce the overall amount that you are planning to spend. Use coupons and discount codes to get some pounds off on your entire bill.
14. Pay the expensive debt first
If you cannot increase the minimum payments of all your debt simultaneously, you can pick one debt first. Make a list of all your debts and spot the expensive one. Try putting in some extra effort to pay this debt off fast. Because you are paying more money towards that particular debt out of all. That’s draining your finances. You will make noticeable progress when you completely pay off the expensive debt.
15. Apply for an authorised overdraft
You can take help from your bank by getting an authorised overdraft. Never get into an unauthorized overdraft as you may have to pay additional charges. It may turn into an expensive form of borrowing. Therefore, contact your bank and ask them to get you a certain limit that you can use. Ensure that you do not spend more than the available limit.
16. Debt snowball method
Simply put, it is a popular debt reduction strategy. You are required to pay your smallest debt first, slowly gaining momentum while you keep clearing off the debts. Paying off debt is not an easy task. And everybody will have a different strategy to knock out the balance. This method, in particular, encourages you for debt repayments.
17. Consolidate your debts
You can borrow a debt consolidation to merge all your existing debts into one. Typically, a debt consolidation loan lowers your overall interest rate. And managing repayments become easier as instead of paying multiple loans, you will have to repay only one. But a debt consolidation loan may only work if you can afford the monthly repayments. Or else, you may get into a debt spiral once again. There are a lot of myths around taking a personal loan for consolidation. Talk to an expert and get free debt advice from organisations to make the right decision.
18. Get financial help through benefits
You can take the help of the Government. You may be entitled to a host of benefits but you may not be aware of it. Benefits are not only available to people who do not work. There are government benefits for people who are working and are absolutely fit with no underlying health concerns. You could also be eligible for universal credit. Use these benefits to lower your monthly financial burden. It will make it easier for you to repay the debt without much trouble.
Read: Universal Credit 2020
19. Cancel unnecessary subscriptions
There are chances that you might be paying for services that you no longer use. But the amount must be getting deducted from your account every month. Check your bank statements and find payments that are not familiar. Check whether those payments can be cancelled. Because what’s the point of paying for something that you are not even using. It could be anything, from an unused gym membership to a TV subscription.
20. Refinance your mortgage
If you own your home outright, you can use the equity to consolidate your debts into your mortgage. But this option may get expensive if you do not have much equity left on your home. Talk to your bank, lender or an expert when if you want to refinance your mortgage. As you would be involving your home/asset, you need to discuss thoroughly the situation that you have. They will assess your condition before giving you any kind of advice.
21. Cash-out your life insurance policy
Use whatever you have put in your life insurance till now to repay the debt that you owe. This is a risky method that will also have tax consequences. Borrowing money through your life insurance may jeopardize the financial benefits of the beneficiaries. Do not make this decision without any serious consultation with debt advisors.
22. Switch your insurance
Staying loyal to an insurer year after year will only burn a hole in your pocket. Deals will be better for new customers. Make sure you don’t increase your outgoings by spending more than you need on insurance. Explore and shop around to find a better insurance deal that will help you save money. Compare offers to find a deal on the insurance that works the best for you.
23. Stop investing
You have to pause investing money into your retirement fund if you are in a serious debt condition. If you are focusing on getting debt-free as soon as possible, you will need to adopt such extreme measures. Start investing for your retirement as soon as you are free from the burden of debt and you’ve already saved 3 months of expense for your emergencies. Do not neglect reworking on your retirement fund.
24. Have no-spend weeks
This is a bit challenging. See if you can go for a week without paying more than you need in order to survive. That means there’s no eating out. No partying out. No retail shopping at all. It’s all food and fuel, and that’s it. If you find it difficult, start by having “no spend-day”. Take one step at a time and adjust the pace according to you. You will save a great deal of money if you continue this for a couple of months.
25. Get help from Credit Unions
You can borrow money from Credit Unions. They are communities run and organised by and for the members. They provide loans at low-interest rates and also encourage all of their members to save money regularly. There’s a cap on the amount of interest a credit union can charge to their borrowers. It can go up to a maximum of 42.6% APR a month and in Northern Ireland, the maximum it can charge per month is 12.9% APR.
26. Don’t take payday loans
Payday loans are high-cost credit that you can borrow for a short period. The interest rate is quite high and you may dip lower into the debt barrel if you fail to manage the loan successfully. If you are struggling with your finances, it can be tempting to get a payday loan. However, remember that there is a wide range of alternatives available at a much cheaper rate.
27. Utilise a balance transfer card
If you find yourself eligible for a 0% balance transfer card, don’t miss the opportunity. If you have debts on your credit card, you can switch the balance to this 0% card. You will get a lot of time to repay the debt of this latter card without any interest.
Suppose, you are repaying your credit card debt and you are paying 24% APR on it. Rather than paying for the interest, you can save it by transferring the balance amount from a 0% credit card to your existing one. When you use a 0% interest credit card, you will get a period to repay the amount without any interest.
28. Consider downsizing
If you are living on rent, consider moving out to a cheaper place. Try selling off your car so that you can contribute that money towards reducing your overall debt. You can always come back to the place you were staying or may upgrade to a better locality once your finance is back on track. The key is to cut down on expenses wherever and whenever possible.
29. Consider IVA
An Individual Voluntary Arrangement (IVA) is a legal contract drawn up between you and your creditor. It freezes your debts and you have to pay it completely or part of it by making regular repayments. After the given period, if you still owe some money, it will be written off. If you can afford to make some payment towards your debts – you may apply for an IVA. For that, you will need to prove that you have an income source.
30. Take debt counselling
There are various organisations and charities in the UK who offer their debt advice service for free. Their advice is completely impartial and proves to be very helpful. You may contact them through their website or may reach out to them over the phone. If you think you cannot afford any repayments, it is always wise to talk to the experts.
You can save a huge amount of money if you pay off all your debts on time. Debts are not stockpiled in a day. It takes years for us to accumulate debts and we start panicking when it slips out of our hands. Rather than making the situation unmanageable, you can work towards maintaining the right balance. Many people take out loans to pay for their property and they manage it strategically. Paying off debt is a painful task and requires you to be strong, patient and disciplined with your goals. Learn to gain control over the money that you earn. Your expenses should never be more than your income.