With interest rates at record lows, there’s really only one way they can go and as, when and if they go up, the cost of being in debt will go up with them.  That being so, it’s probably a good idea to start making an extra effort to deal with the situation now.  Here are ten steps to take to free yourself of the debt burden.

  1. Take your head out of the sand

If you’re in debt you need to look at ways to get out of debt, so even if you don’t think you have a debt problem, as such, you can and should acknowledge that you have a debt issue which you need to tackle.

2. Assess your current situation

What happened in the past is irrelevant as is who was to blame (unless you seriously think you have a legal case against someone).  What matters is where you find yourself right here right now and what you need to do about it.  Dig out your bank and credit-card statements and see where your money is going.  Keep receipts and check to see how much of your supermarket shopping is actually essentials and where added extras are slipping in.

3. Make sure your current account is with a bank to which you do not owe money

If a creditor bank has direct access to your current account (or savings) it can just (legally) help itself to the money it needs to pay off any overdue debt.  If it doesn’t then it has to go through a legal process during which time you can make the necessary payment.

4. Ditch any unnecessary expenses

This is where the honesty comes in.  When you go through your finances, your aim should be to pare back to absolute essentials and that includes cutting out convenience purchases like ready meals.  In fact cooking from scratch using basic ingredients can go a long way to saving money, particularly if you can live without meat.  Obviously, if you’re a smoker now is a particularly good time to give up.

5. Build up your reserves

In principle you only actually have savings when you are free of debt.  In practice, it’s a good idea to have a cash cushion ready for when life happens so that you can avoid having to take on more debt or finding yourself short of funds and unable to get more credit.  With this in mind, it can be a good idea to think about increasing your insurance cover, particularly pet insurance.

6. Be clear about your priorities

You need to prioritise any debts to the government (taxes) and anything which relates to basic living expenses, including getting to work, then comes your key debt repayments.  Everything else comes after that, if at all.  That includes the likes of school trips, Christmas and birthday presents and family outings.  With that in mind, you need to be ready to set clear expectations and explain your reasons.

7. Start snowballing

The basic idea of snowballing is that you put all your spare money towards your highest-interest debt (i.e. the most expensive one) and then when this is cleared, you move on to your next highest-interest debt and so on.  It is a very effective way of clearing debt.

8. Try negotiating with your creditors

It never hurts to try asking for a better deal, the worst they can do is say no.

9. Speak to a debt-management specialist

There is plenty of free advice on the internet and there are debt-management charities which can give good advice, but they are often very busy, so if you are struggling to manage, it can be worth investing in a visit to a professional debt-management specialist.

10. Familiarise yourself with your rights and obligations

Above all, remember that you have a legal obligation to treat all creditors fairly rather than prioritizing one over the other.  In the eyes of the law, a loan from your parents is no more or less significant than a loan from a high street bank.

 

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