When you are in debt, you may find yourself feeling stressed and unable to find a way out. Being in debt makes it harder for all aspects of your life.
Some employers won’t hire people in debt, you will find it harder to get lines of credit, and you may struggle to pay important bills.
There are ways to get yourself out of that situation, but it will come with hard work. Here are some tips for you to consider.
Assess your situation
Sometimes it is easier to bury your head in the sand and ignore your finances. Sit down and work out exactly where your finances are.
If you have moved house or have not heard from your creditors in a while, it can be easy to forget about them. You can check your credit file to see if anything is outstanding that you are unaware of.
Create a realistic budget
Once you have a good picture of your financial situation, it is time to set a realistic budget. You may want to follow the 50/30/20 rule. This is where you put 50% of your income to your needs. Things like rent, heating bills, food and minimum credit repayments.
30% should then go to wants such as streaming subscriptions, takeaways, or gym memberships. The final 20% goes into a savings pot for a big purchase or as an emergency fund.
Build an emergency fund
Creating an emergency fund is essential to prevent you from falling into further debt. Unexpected financial outgoings such as the washing machine breaking down or your car needing urgent repairs can set you back long-term.
If you are unable to put 20% of your wages into a savings pot, start small. Even if you aim to put £50 per month away, it will quickly add up into a healthy cushion.
Prioritise high-interest debts
If you let debts go unchecked, the interest will build up and make them a lot larger. When it comes to paying them off, focus on the ones with the highest interest.
Every month, meet the minimum payments for all of your debts. Then, if you have any remaining money, put it towards the debt with the highest interest rate. This will result in you paying less interest overall. This method is known as the Debt Avalanche Method.
Explore consolidation options
If you are finding keeping track of multiple payments too much, then you may want to look at consolidating your debts.
A debt consolidation loan will help to pay off all of your debts and leave you with one affordable monthly payment. This is much easier to keep track of and ensures you don’t miss a payment or lose track of your accounts.
There is no shame in seeking help with your finances. If it is keeping you up at night or you are hiding from creditor calls and letters, then speak to a professional.
They will be able to work with you and give you a realistic plan for getting you back to financial health. National Debtline has a free phone number you can call for impartial advice.