It can at times seem like getting into debt is easier or at least quicker than getting out of it, but with time and sensible planning, it is possible to pay off debt and improve your financial situation.
Prioritise Your Debt
A review of your outstanding debt might give you a clearer indication of the debts that require a quicker or more immediate solution. For example, council tax repayments or water and energy bills have to take priority over smaller unsecured loans, where alternative plans can be arranged to take into consideration any priority debts that are being repaid. Once you know which debts are a priority, it’s much easier to devise a solid plan for settling them.
Contact Your Creditors
If you’re worried about how your creditor can help if you can’t repay your loan - don’t be. Creditors want to help you repay in a way that is sustainable for you and that doesn’t put you under unnecessary financial strain, but they can only help you if you let them know that you’re having a difficult time repaying. Though it can feel a little intimidating to reach out to your creditors - especially if there are many - it’s always better than burying your head in the sand and pretending it’s not happening. Reaching out to your creditors as soon as possible also means that you’re less likely to have unnecessary late fees and extra charges added to your balance as you’ll hopefully be able to come to an agreement quickly. It’s also worth asking your creditors if they can freeze your balance to avoid additional charges.
Pause and Make a Plan
If you want to make a real dent in your debt, you’ll need to start by reviewing your financial situation properly. This means being honest about what your current circumstances are and being clear on how much you need to repay and when.
Create a Budget
Work out your income and expenditure and which of your expenses can either be cut down or cut out completely. You might find that a lot of your expenses are not essential, which means you can free up more money each month to put towards paying off debt. This doesn’t mean you can’t enjoy outings with friends or the occasional take away, but you’ll have to tighten your belt a little more than might be comfortable at first, if you want to see some fast improvements!
Use The Avalanche Method
The debt avalanche method is a more mathematical approach towards settling debt. First, you start by organising each debt from the one with the highest interest rate to the lowest interest rate. Then you’ll need to make a budget to work out how much you can realistically afford to put towards the debt with the highest interest rate. You’ll need to factor in making overpayments, as you’ll want to settle this one as quickly as possible.
As your balance reduces, you’ll have less interest to pay meaning you can settle your loan sooner. Once the debt has been repaid, apply the same repayment amount to your next debt, and watch your debt start to dissipate. It may take some time to see a difference in your balance, particularly if there was a high balance to begin with, but don’t let this discourage you!
Use The Snowball Method
This method of settling debts is a great way to keep you motivated as the gratification of settling a debt comes more quickly than with the Avalanche method. You start by making the minimum payments towards each of your debts, putting as much extra money as possible towards the smallest debt. Repeat this as you settle each debt until your debts are fully repaid.
If you have a lot of small debts, this strategy could be a great way to help you settle them quickly. It might take a longer time to settle your larger debts if interest is still being added to them, but it can be even more encouraging to see some of your smaller debts satisfied sooner.
Get Free Debt Advice
Managing your finances and paying off debts can be a difficult task, but you don’t have to go it alone. You can get free advice from different debt management charities and companies that offer free debt advice, such as StepChange, as well as from your local Citizens Advice Bureau. With their help, you can get a clear breakdown of your financial situation and work out how much you can put towards settling your debts, or if you are really struggling to pay – explore alternative options.
Avoid Further Debt
If the need for credit is urgent cash loans can be useful when used responsibly. However, if your aim is to pay off debt, it’s probably best not to take further credit – at least not while your existing debt remains unpaid. Living within your means and abiding by a strict budget, whilst employing a number of these strategies, can be a great way to start paying off your debt and get you set up for a brighter, more peaceful, financial future.
