In the run up to Christmas, it’s easy to brush aside debt worries.
You’ve got presents to buy, dinner to shop for, and New Year’s drinks to
But now, in the hard light of 2016, it’s time to face some facts.
you’re in your overdraft, you’re in debt. If you’ve reached your
overdraft limit, you’re on the verge of problem debt. And all your
credit card bills are about to come back to haunt you.
The good news is, you CAN do something about it.
This is the perfect time to draw up your plan to get rid of your debts and end the year on the right side of the overdraft line.
Here are our steps to paying off your debts for good. But if you think
you’ve already got more than you can handle, you can contact a free debt
advice charity like StepChange or National Debtline . You may be able to arrange a debt management plan which makes life simpler.
1. Know your debts
It might not be as bad as you think. Start by identifying all your
debts, including your overdraft. Find out how much you’re paying in
interest or fees on each debt. This will help you prioritise what you
A quick way to do this is to take a look at your credit report . This lists who you owe what money to - and is used by lenders when they decide whether to not to offer you a rate or loan. Noddle and ClearScore both let you see your report free and offer tips to improving your rating.
2. Rethink your spending
you’re going to sort out your debts, you’re going to have to focus on
spending less and paying back more. So zero-in on the problem. Are you a
big spender? If so, what EXACTLY are you spending the cash on? Has your
income dropped? Or did you make one mistake and the fees spiralled out
3. Draw up a budget
Go through your bank and card statements and identify what
you could cut down on. Then start rethinking your spending habits. We’ve
got tips on how to cut your shopping bill , and apps to help you manage your spending here .
Read more: Martin Lewis' expert guide to drawing up a budget
Some debts are more dangerous than others. For example, if you fall
behind on your mortgage, you could lose your home. If you don’t pay
council tax, you could end up in jail. But if you don’t pay off store
card debts, you can simply lose money or possessions. You can read more about priority and non-priority debts here .
5. Speak to lenders
If you’re behind on debt repayments, it’s worth speaking to
the lender. For example, mortgage lenders are required to try to come to
an agreement with you on a better way to repay your debt, such as extending your mortgage term .
6. Move your money
You might not be able to move all your money to a 0% card
, but that doesn't mean you're getting the best deal you can. You can
reduce your interest rate by switching your debts to a credit card with a
lower rate, or even no interest for a set period of time. This is how
to do it with an overdraft and with existing credit card debts . Just remember, this buys you time - it doesn’t cancel your debt.
might also be better off taking out a personal loan at a lower rate
than your cards and overdraft are at amd using that to clear your more
expensive debts. Just ensure you are saving money and don't build up
debts on your card or overdraft again once you've done this.
7. Consider snowballing
For some debtors, it makes sense to focus on paying down the debt with
the highest interest rate first. This is called ‘snowballing’. You can
find out whether it will save you any money using a calculator like this one.
8. Consider a debt management plan
If this is already too stressful, you may need some outside help. You can sign up to a debt management plan
, where you pay a set amount each month. But be careful. You need to
sign up with a plan you trust - NOT whoever calls you that day. This is what you need to watch out for .
9. Build up a safety net
Once you’re back in the black, keep on working to build up a financial
cushion. This will give you breathing space if you get caught out again.
You can do this by saving , or even taking drastic action and finding a better paid job elsewhere, like this man did .