Practical steps to help take control of your personal debts
December 5, 2016
Taking control of mounting debt can seem impossible at first, but there are actions you can take that will help you escape the debt spiral before it’s too late. Whether an unfortunate life event has caused your financial situation, or you simply spent too much on credit and can’t afford to repay, here are some useful tips to help you take back control of your finances.
Calculate how much money is coming in, and the total amount of debt
Many people are forced in bankruptcy because they didn’t understand the extent of their debt. Only by getting to grips with how much is coming in and going out each month, can you make a suitable and reliable plan of action.
You should include all outgoings, including the smaller unplanned spending that can add up to a considerable amount by the end of the month. You’ll see if your debt is repayable over time if you reduce your spending, or whether you need to seek professional debt help.
Decide on the priority and non-priority debts
Priority debts include rent, mortgage repayments, council tax, heating and lighting, and payments ordered by the courts. In other words, those which will have serious consequences if you don’t pay.
Non-priority debts include credit card repayments, unsecured loans from your bank, payday loans, HP agreements, and water bills. By prioritising which debts are repaid each month, you keep a roof over your head and your home warm.
Use savings to pay off debt
It’s sensible to pay off debt with any savings you’ve accumulated, because the rate charged by lenders will probably be much higher than your savings interest rate.
Some people choose to pay off the smallest debts first as this motivates them to tackle the larger amounts. But it makes sense to pay off the debt with the highest interest rate first, as it will save you money in the long-run.
Make more than the minimum repayment and use balance transfers
If you only make the minimum payment on credit cards each month, your debt will spiral out of control very quickly. Balance transfers are very helpful in this respect, and help you avoid interest on your credit card spending if you can find a card provider offering 0% interest for a period of time.
As long as you don’t use the new card and it’s part of a bigger plan to repay your total debt, this ‘sidelines’ the specific amount and makes it easier to pay it off over the time of the offer.
Earn more, spend less, or both
It’s easier to say than actually do, but earning more and spending less will quickly make a difference to your financial situation if you plough the extra cash straight into repaying debt. Again, being fully aware of all your figures is key, otherwise you could remain on a downward spiral and be unaware until it’s too late.
It’s worth checking your eligibility for state benefits and other entitlements such as council tax reliefs, as these can significantly boost your monthly income. Also check your tax code – if it’s incorrect, you might be eligible for a rebate.
Approach a debt charity
Debt charities offer free confidential advice to people struggling to repay creditors. They will help you establish a plan for repayment, as well as a realistic budget to prevent further problems.
Some charities assist in communicating with creditors, and advising on how to negotiate with them informally with a view to repaying over an extended period of time. Essentially, the aim would be to arrive at an affordable figure after essential living expenses have been deducted, and request that all interest and charges on the debts are frozen.
Formal debt solutions
Various formal debt procedures are available if you can’t afford to repay your debts in full. You’ll need assistance from an accredited money advisor who will establish your eligibility.
Potential options include the Debt Arrangement Scheme which repays your debts in full, a Trust Deed, and sequestration (the term for bankruptcy in Scotland) which involves writing off remaining debts at the end of the term.
Scotland Debt Solutions works solely on behalf of residents in Scotland, and can help you out of your debt situation. With four offices around the country, we’re able to quickly establish your position and offer confidential, reliable guidance.