Healthy personal finances are often key to keeping you stress-free and able to live your best life. Credit scores are important for everything from being accepted on a new rental agreement, right through to getting a phone contract or a mortgage for a new house. But it’s also easy to get into substantial debt. And while debt isn’t necessarily a bad thing, if it feels like its getting out of control, here are some tips for managing bad credit.
While it may seem scary, your first port of call is to ring your creditors and agree new, more affordable payment plans. Transparency is key here – be honest about your finances and your creditor will do all they can to help. But there are other ways to manage and get out of debt too. Here, we’ll take a look at how managing debt is a long term process as well as some tips for getting out of debt.
Managing Debt Is A Long Term Process
Most households find it challenging to manage debt repayments and everyday expenses, making it hard to finance day-to-day needs and lifestyle. The truth is that there is no secret when it comes to debts. You will not be able to clear it overnight. Therefore, debt management is all about running a financial marathon. You need to keep your eyes focused on the long-term objective. While it requires discipline and motivation, it also means that there is some room for you and your family to indulge once in a while rather than depriving yourself.
8 Tips For Getting Out Of Debt
Managing debt is a process, in which you’ll learn the best ways to control your finances and avoid costly mistakes. Here are our top 8 tips to get debt-free this year.
1. Find professional support
You don’t need to tackle your debts alone. More often than not, confusion and lack of clarity make your financial situation worse. Gaining an understanding of your financial situation can transform your approach to debt.
Indeed, being in a position when you can’t pay what you owe is stressful. Your local Citizen Advice Bureau can help you to find a certified financial advisor to look at your personal circumstances and find a solution that suits your needs.
While there are plenty of charities which offer you free advice, if you don’t find the right answers or have the time, you can opt for a paid service. These include FCA-registered advisors, but it’s best to stick to advice without cost.
To reiterate, if you can’t afford to hire an advisor, you can contact an impartial organisation such as the Money Advice Service, which specialises in free financial guidance. With their help, you can create a list of your creditors and how much you owe to each, which will be the foundation of your debt repayment plan.
2. Strategic repayment
Did you know that most people don’t understand how to repay their credit card debts? While it might be tempting to start with the cards where you owe the largest amount, you need to change your approach and consider your interest rates.
Prioritise debts with the highest interest rate. This will save you repayment costs in the long term. You can apply the same principle to open invoices. Some of your creditors may be open to delaying repayment or spreading the cost over a period of time, while others will add a fine fee to your bill. Make sure you can prioritise your repayment accordingly.
3. Consolidate your debts
Debt consolidation loans can give you a breath of fresh air when you’re trying to repay multiple debts at the same time. If you’re struggling to pay your debts, find out how a consolidation loan could help you and whether it’s the best solution for your situation.
It’s a good idea to compare loans and work out the best interest rate for the amount you need to borrow. Consolidation is best suited to repay and manage multiple debts with only one monthly payment. It also helps improve your credit rating as it helps closing credit debts. But, be aware that you may end up with a higher interest rate or receive early repayment penalties.
4. Budget your ins and outs
An in-depth knowledge of your budget can prove highly efficient when it comes to managing and clearing debts. Knowing exactly how much you need to pay every month can help reduce unexpected and unplanned expenses.
Additionally, running a tight budget will also help schedule necessary payments such as your rent or mortgage. A budget calculator tool can be useful to cut out unnecessary wastes. Consider a free budgeting app on your phone such as Money Dashboard, to keep track of what is coming in and going out.
5. Consider a loan
When a consolidation loan isn’t an option, you can apply for a short-term loan instead to repay your most pressing debts. Getting rid of your most substantial debts may give you some breathing space. You can gradually regain control of your finances once you eliminate the most harmful money burden. If you can’t pay your debts at their current level, spread out the repayment of your loan over a long period and pay less each month. Be aware that shorter term loans can be more expensive and should only be used when other, alternatives have been considered.
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6. Have a long-term strategy
You will not get debt-free overnight. But that’s okay. Eliminating debts is a long-term process, which means that you need to plan ahead and consider the next 12 to 36 months. It’s a process during which you need to prioritise creditors and debts based on interest rates and amount.
Working on your debt repayment as part of a long-term strategy allows you to spread out costs and repayments over a long period. The advantage of postponing your debt-free situation is that you can give yourself sufficient financial freedom to create a safety net, such as emergency funds and savings accounts.
Indeed, it’s not safe to drain your financial assets to repay your debts as it can make you vulnerable to unexpected costs. Additionally, you’ll find that it’s easier to maintain budgeting discipline if you make room for a little indulgence now and then.
7. Create side incomes
When your main household income is too low to help manage your debts, you can look for opportunities to make money on the side. For example, decluttering your home is a fantastic way of getting rid of unwanted and unused items and making a side income. You may not be able to repay your debts fully, but it can add some comfort to your household budget.
Many UK households also consider freelancing work on the side, such as offering their skills on platforms like UpWork or PeoplePerHour. These platforms allow you to easily turn your professional expertise into a side hustle and create a secondary source of income!
8. Boost your main income
Improving your primary income can help you repay your debts more quickly. If you are due a raise, don’t be afraid to negotiate it with your manager. Applying for promotion inside your company can be another idea.
Alternatively, you can apply for a new position with the guarantee of earning a pay boost. Changing your employer can be a gamble if you haven’t done your research first, but it is sometimes a fantastic solution to erase your financial issues.
9. Ask for help
There’s no shame in asking for support when you can’t make ends meet. Often, when you’re in debt and dealing with creditors, you need assistance to fight everyday challenges.
Food banks are a fantastic source of help for a variety of issues. Not only do they provide help with food parcels, but the team of on-site volunteers are also trained to guide you with benefit calculation and signpost you to essential grants that help those in need. They can also offer guidance on a variety of questions from housing to debt management.
You might also find it helpful too to look for local events by the Christian Aid Collective. They’re dedicated to fighting poverty everywhere, including in the UK.
Hopefully, these tips on how to manage debt can help you to improve your situation and regain your peace of mind.