With the UK level of unsecured debt in July 2017 reaching a staggering £199.7 billion1 it may seem harder than ever to get out of debt. Loans and credit cards can be great for seeing us through difficult financial times but the problem occurs when relying on them becomes a way of life and we find ourselves drowning in interest repayments. Jamie Smith-Thompson, managing director at pension advice specialist Portafina, shares six simple tips to help ease your debt now and in the future:
Keep track of how much interest you are paying
If you have multiple debts it is easy to lose track of how much interest you are paying, and how much of your hard-earned cash is leaking out of your accounts each month. List your current debts from big to small, and check how much interest you are paying per month. Target the smallest debts and those with the highest interest rates first, then work your way through the rest when you are able to. The interest paid on any savings you have is usually far less than interest charged on borrowing, so paying off debts with any savings will automatically have a beneficial long-term effect on the money you have available.
Budget for the future
Create a budget which covers all your weekly spends and expenses, including the amount you want to put aside for a ‘rainy day’ and savings. Managing your money online can make budgeting so much easier as you can track spends, direct debits and income 24/7.
Ditching the debt lifestyle is as much about preparing financially for the future as getting rid of your current loans. Budgeting for times when money is tight will mean you are less likely to fall into the debt trap in the future. By factoring ‘rainy day’ money and savings for short-term and long-term goals into your budget – even if it is a small amount at first – you will quickly get into the habit of thinking in real money terms and staying within set financial boundaries.
Don’t let money slip through your fingers
Remember that free 30-day trial for Audible that you never used, but also never cancelled? It’s now costing you an extra £962 a year! By looking through your past bank statements, and making sure you’re not wasting money on services you no longer use, you can save a small fortune in the long term. And those initial savings you make? Why not break down those overhanging debts even further!
Keeping out of the red and sticking to your budget requires a shift in mindset. You will need to be disciplined and focused on what you can afford and need, rather than what you want. Before buying anything ask yourself “Do I really need this?” By not spending on things you don’t need, you are freeing up money which can be used for those treats or goals in the future. Try to see your budget not as a restriction, but as a way of saving real money that can be used for goals that at one time may have seemed out of reach.
Get into the habit of asking yourself “Can I get this cheaper?” Shopping around, especially online, can keep debt at bay in the long-term. Comparison sites, discount vouchers, and cashback offers are just some of the ways to save cash. Third party cashback sites contract with big stores to offer discount prices. Make it a challenge to find that bargain, it’s fun and a great feeling when you make a killing that helps with your goal.
Play the credit card companies
Look at borrowing cheaper. Your ultimate aim has to be getting rid of using credit cards altogether, but first of all, check out whether there are other credit companies with cheaper interest rates – there will be plenty of 0% offers. You can also help to break down immediate interest by taking advantage of credit company transfer offers where you are allowed set interest free period on your loan – and there is no limit to how many times you can swap. But never borrow to get out of a debt.