Save money

Fun stuff

Dealing with debt

Over the last few years the UK has developed a ‘spend now, pay later’ culture thanks to the easy availability of credit. According to a recent survey the most common source of debt was credit cards with 1 in 3 people owing money to credit card companies.

Are you one of the many that now find themselves in debt? If you are not sure then it is time to find out by comparing your income with your expenditure to find out how much you overspend or save each month.

££££££££££££££££££££££££££££££££££££££££££££££££££££

Net monthly income/expenditure

The first thing to do is to calculate your monthly (or you can do it weekly/annually) income by listing the amounts of money you receive each month, for example, salary (after tax), income support, child benefit, bank interest, dividends etc.

Next you need to identify all your monthly expenditure, such as, rent, telephone, rates, TV licence, electricity, petrol, groceries etc.

By deducting your expenditure from your income you will calculate your net income or net expenditure if your out goings exceed your income.

££££££££££££££££££££££££££££££££££££££££££££££££££££

Debt

Once you know how much debt you are in you should list all your debts and should include bank loans, credit cards, store cards. You should also list the interest rate for each of these so you can see easily which is the most expensive and hence which needs to be reduced first.

££££££££££££££££££££££££££££££££££££££££££££££££££££

Reducing the debt

In order to free up as much money as possible to pay off your debts you should consider:-

obtaining a better deal on your credit card debts by transferring them to a low-interest rate card or if possible a card offering a 0% introductory period;
using any money you have saved to reduce your debts as these savings are likely to be earning only a fraction of the interest you will be paying on your debts. For example, if you have £1,000 in savings earning 4% interest you will earn £40 a year in interest, whilst if you owe £1,000 on a credit card debt at a rate of say 15% a year you will be paying interest of £150. By using your savings to pay off your credit card debt you will save yourself £110 a year.
consolidating your debts by taking out a personal loan at the lowest possible interest rate. It is possible to get a personal loan for under 6% which compared to paying interest on a credit card of 15% would save you a significant amount of money;
releasing some of the equity in your home by remortgaging.

If you're not in a position to do any of these things then it's time to prioritise. You should try to at least meet the minimum monthly repayments and then to use any spare money to pay off your debt with the highest interest rate. Keep paying off your most expensive debt until it is paid off while making minimum payments on the others. Then pay off the next most expensive debt and so on.

You may think it is easier to pay off the smallest debts first, irrespective of the interest rate. However, you must resist this urge as it may take you longer to clear your debts unless the smallest ones happen to charge the highest interest rates.

Free Debt Management

Compare debt management plans using our calculator – Search online now!

www.trapped.co.uk

More ideas

Other tips that you can follow to reduce your debts include:-

try to pay all your debts as soon as possible after you receive you’re income. That way you'll get the bills out of the way before you get a chance to spend the money on other things;
consider getting a second job to allow you to clear you’re debts quicker, you can also earn extra cash by getting paid to complete surveys online. The most common reasons for having a second job is to save for holidays and to pay off household bills;
try to sell any unwanted bits and pieces through either a garage/car boot sale or online using an internet auction site such as Ebay;
join your supermarkets reward scheme if they have one and also reward schemes on the internet if you shop online;
cut out and use any money off coupons, use online websites such as trollydolly or even have them e-mailed to you by fixtureferrets. You should also take advantage of any freebies you come across;
shop around for the cheapest mortgages, credit cards and loans, don’t just visit your local bank. If you have any savings it is probably better to use them to pay off your debt as the interest is likely to be higher on your borrowings;
switch gas and electricity suppliers. Visit USwitch for more information on how to save money on utility bills;
use the services of the Citizen's Advice Bureau or the Consumer Credit Counselling Service as both these services are free whilst debt counselling companies will charge you a fee;
buy the supermarkets own labelled products as these are often just as good as well known brands but are considerably cheaper;
never go shopping without a list of what you actually need. It is surprising how easy it is to buy things you don’t need when you go out shopping;
give up smoking by visiting Quit for advice on giving up; and
claim all the benefits you are entitled to by visiting EntitledTo.