It’s been said many times already, but 2020 is the start of a new decade as well as a new year.  On a more practical note, 2020 will be the transition year during which the UK and the EU will redefine their relationship.  As yet, it’s unclear what the separation will mean in practice, but it makes sense to hope for the best, but prepare for the worst.  That means doing everything you can to sort out your finances, especially if you’re in debt.  Here are some tips.

Start by taking a realistic baseline

In short, what you want to know is whether or not you can maintain a reasonable standard of living while continuing to make the minimum payment on your debts.  If the answer is no you are in a debt crisis and need to seek professional guidance.  For the sake of clarity (and reassurance), this does not necessarily mean that you will have to become formally insolvent.  It may do, but there may be other options such as a debt management plan.

If the answer is yes, then you are not in debt crisis and need to focus on an effective strategy to pay off your debts as quickly as possible.

Reduce your outgoings

Outgoings can be roughly divided into two categories, essential and discretionary.  Sometimes, however, it can be challenging to tell which is which, especially when the lines become blurred.  For example, a phone is often a need and sometimes a smartphone is a genuine need.  A high-end smartphone, however, is more likely to be a want.  If you’re dealing with debt, you need to be brutally honest about identifying what are needs and what are wants and cutting back on the latter.

For the sake of completeness, be careful to avoid going to the opposite extreme and categorizing genuine needs as wants.  You can’t live on beans-on-toast all day every day, you need proper food, clothes, shoes etc.

Even when an outgoing is essential, you may still have some degree of flexibility as to how you manage it.  For example, you may need transport to your work, but the overall cost might work out more affordable if you took the bus part of the way instead of the train or walked to a bus stop which was a later fare stage.  If you use a car, could you sell it and take public transport instead, perhaps with the occasional taxi?

Increase your income

Actively look for ways to bring in more money, preferably in the form of regular income.  It may sound like a cliche, but even small amounts really can make a big difference.  Remember that anything resembling a “side-hustle” will almost certainly need to be declared to HMRC.  As with anything to with tax the golden rule is “if in doubt, ask/declare”.

Registering as self-employed is very straightforward and while tax returns are tedious, if you have minimum income from anything other than paid employment, they’re fairly straightforward.  If you do find yourself earning significant income from your side-hustle, then congratulations, you can get someone else to do your books for you.

Prioritise your debts effectively

If possible, you should look to move debts onto lower-interest forms of credit, for example, high-interest credit card debts onto lower-interest personal loans.  In practice, this can be something of a challenge.  You can, however, focus on paying off your highest-interest debt first and then moving onto your next highest-interest debt and so on.  You can also try negotiating with your creditors.  How likely you are to succeed will depend on various factors, but it’s highly unlikely that there will be any harm in trying.

 

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