This is a collaborative post
Obviously, if you can avoid getting into debt in the first place this would be better than having to get yourself out of debt. That said, you are probably reading this as now you are in debt you want to get out of it as easily as possible. there are a few things you need to consider when moving forwards with your budget and back in the black so to speak.
List your debts
The first thing you need to do is to know what your actual debts are. Mark which are high-interest rates such as payday loans and which are priority debts such as your water bills. This helps you see which you should consider a priority.
Make a budget
It is important to know what you need to spend in comparison to what you want to spend. Look back on old bank statements and check what you spend on food per month, on coffee on the way to work etc. Write everything you have been spending down and anything that you foresee you will need to spend in the next few months and mark if they are essential or not.
If you are serious about wanting to ditch your debts then you need to look carefully at these and cut back everywhere you can to ensure that you can pay as much as possible off your debts. If you really can’t cut back on coffee after a therapy session then keep that in your budget. Do you need that audiobook subscription anymore? Is it time to cancel the Disney + you don’t even watch?
When you have the cost of your essential outgoings you should be able to see how much you can spend on paying debts off each month. If this is something you are struggling to do a charity such as Stepchange can help with this or your local citizen’s advice bureau.
Choosing which debts to pay off first
The choice of which debts should be paid off first needs to come down to their priority of them and the interest rates. For example, some debts are serious if you do not pay them, such as your utility bills so they should be paid off first. A storecard is less important if it is a low-interest rate and should be paid off after those priority debts have been settled.
What happens if I can’t afford to pay all the high-interest and priority debts?
If you really can’t afford to pay your high-interest rate debts or the priority debts because the difference between your incoming money and essential outgoings is too small there are two options available to you.
Firstly you can contact your debtors with a statement about your incoming and outgoing finances and ask them to stop adding interest to the debts and allow you smaller payments to pay it off gradually. This can affect your credit rating but if it is needed then you should ensure you only agree to payments you can definitely stick to.
Secondly, you could consider a consolidation loan or a personal loan to cover the cost of all of your debts and ensure you only have one payment to pay each month. When looking for a loan you need to look at the length of the loan and be sure you can keep up the monthly payments. Remember there will be more things that come up in that time that require money so allow a little for emergencies in your budget too. If you can get approved to borrow the full amount of your debts be sure to use it to pay your debts off immediately. Do not be tempted to just pay some and spend the rest on a treat growing your debts further!
