Spiralling debt is stressful and can significantly impact your financial future. Here are some steps on getting debt-free and taking control of your finances.
Debts can put limits on how you live your lifestyle and can put strains on your mental health. By Following these steps on how to become debt-free for good this guide will benefit you.
- Work out what you owe
Nobody likes being in debt or checking their bank balance when they know they don’t have any money. However, if you think you may have a debt problem, it’s important to find out precisely how much you owe.
Go through your paperwork and open any bills and bank statements you left to pile up and calculate what you owe.
It can be an annoying process but acknowledging a problem is the first step in solving the problem. You can’t begin the road to financial recovery unless you are fully informed.
- Write a budget
You need to write down a budget. This shows how much money you have coming in each month and lists all your outgoing payments.
Your budget must include all your expenditure from your rent or mortgage right down to your weekly takeaway. You can ensure you don’t miss anything by going through your online bank statements. Whether it’s your Netflix subscription or life insurance, it’s easy to overlook expenses unless you go through your past payments.
- Stop frittering away money
The process of writing a budget can be revealing because it highlights all the areas where you might be overspending or squander cash away. By controlling your type of spending, you’ll free up more money to repay your debts, and you’ll also be less likely to borrow any more.
Easy cutbacks to help you save:
- Taking a packed lunches to work
- Avoid getting takeaways
- Using public transport rather than taking a taxi or Uber ride
- Going for a run or bike ride instead of shelling out for gym membership
- Cancelling unnecessary TV subscriptions e.g., Netflix, amazon prime and Disney plus
- Cut the cost of essentials
Cutting your spending takes real discipline it may even affect your lifestyle. However, there are plenty ways of savings to be made on your regular bills, which won’t put any strain on your standard of living.
Things to consider:
- Switching your energy supplier
- Changing your landline, mobile and broadband packages
- Cutting of streaming services which you don’t use
- Compare insurance
- Cut the cost of your debts
You might be able to reduce the cost of your debts. If you can, this can make repaying your debts cheaper and free up more money to pay what you owe.
Credit cards
With credit cards you could also look at your credit card statement to see what you’re being charged in interest. Reducing your interest rate and the amount you owe on your credit cards will help bring your debt down.
If your credit score is high enough, you can make significant savings by transferring your debt onto a balance transfer card with a 0% credit period. This will help you to focus on repaying your debt without interest charges boosting up further and affecting you. You may have to pay a fee, but savings normally outweigh this cost.
If you previously missed a credit card payment or have a low credit score, you may not be eligible for a 0% balance transfer card. However, you will still need to find a card with a lower rate than your current one.
With any balance transfer card, it’s important to remember that the main purpose is to repay your debt – that means you should be disciplined and not purchase anything with your new card.
You should also check at how long your interest-free or discount periods lasts and make sure you pay your debt before it’s due. Otherwise, you’ll start paying interest again.
How to save money with a 0% balance transfer credit:
- Compare other 0% balance transfer credit cards
- Visit loan comparison tables to compare your current loan rate to see the best available deals.
- If you have a fixed rate secured or unsecured loan, you’ll probably have to pay to move to a cheaper option. it’s always worth checking.
- Check out whether you can save money by moving your loan and then ask your lender how many monthly payments you have left on the outstanding balance.
- You should also check whether there are any penalties if you repay the loan early.
- Compare loans
Mortgages:
A mortgage is likely to be your most considerable monthly expense, so if you can save money on your mortgage, it can make a big difference to the amount of money you can use to tackle other debts.
If you’re currently on a standard variable rate mortgage, you could be paying more than you need, and re-mortgaging could be a simple way to reduce your monthly bills.
First, take a look at mortgage comparison tables to get a basic idea of the different types of deals available.
Then go back to your current lender and ask whether they can offer you a better rate. Remortgaging with your existing lender can be a good option because you don’t have all the costs of switching to another bank or building society.
An independent mortgage adviser will be able to explain your options and help you work out the exact cost of moving your mortgage.
Remember, remortgaging is only worthwhile if it saves you money. Read our remortgaging guide for more information.
In all likelihood, you won’t be able to save money by remortgaging if you are on a fixed deal. This is because the penalty fees are likely to outweigh the benefits of a better rate.
However, you should still make a note in your diary so that you’re ready when your rate does run out. Then can switch straight away and start making savings.
Compare mortgages
5 things you need to know before your re-mortgage
- Increase your debt repayments
Hopefully, once you follow these steps, it will make you more in control of your finances. You should know exactly how much you owe, how much money you have coming in and, hopefully, your outgoings are lower.
Now you should be ready to start focusing on your debts and using the money you saved up to repay them.
Pay as much as you can each month and make sure you do. This will not only speed up your debt repayment, but it will also help save you money in interest too.
Setting up debt repayments with your direct debits can make sticking to your plan easier.
- Prioritise your expenses
For your plan to work out, you’ll need to prioritise your expenses. Payments you should put at the top of your list must include:
Council tax
Your rent or mortgage
Any secured loans
You should know keeping a roof over your head must be your number one priority.
Utility bills, food and unsecured loans should be next, with nice-to-have items, such as flat screen TV, nights out with friends, shopping sprees, even home improvements at the bottom of the list.
- Pay all your bills on time
You should know it’s important that you should always pay your debts on time.
Whenever a payment is missed, or you go over your credit card limit, you will most likely be hit with a penalty charge, and you may find that your interest rate rises.
These fees add up quickly add up, so it’s important to avoid them at all costs.
However, if you’re not able to make a payment for whatever reason, contact your lender and explain your situation to them. If you tell them in advance that you’re not able to make them payments, they can lenient and may even offer you the opportunity to reduce your monthly payments.
Top tip:
Remember to pay all your bills by direct debit the day after you are paid, so there’s always money in your account to pay them. This prevents you from missing out on your payments and being charged by your bank.
- Don’t borrow more
Despite whatever a glossy TV ad says, consolidation loans are not the best for everyone, especially if like to borrow more than you need to treat yourself. However, they can sometimes be appropriate in some circumstances, for example, when they can reduce your overall borrowing costs.
It’s vital to avoid consolidating unsecured debts like credit cards, overdrafts or loans with a secured debt can put your assets at risk if you struggle with the repayments.
- Stick with it – but seek help if you need it
You will need to stay on top of things to make sure that you reach the goal of becoming debt-free.
Once you put a plan into action and get into the habit of thinking before you spend, things will feel more manageable than they do right now.
However, if you’re still struggling with unmanageable debt, then it may be best to get help before it’s too late. Contact a company or charity that offers free debt advice, such as the National debt relief or Step Change.
