For more information on debt and links to useful resources, please see my post on debt and mental health.
- Face up to what you owe. Write down all your debts and how much you owe on each one. Add them up to give the total amount you owe. Try not to berate yourself or make excuses. Just accept the amount you owe.
- Enlist help. Debt can be scary and getting support makes the process of paying it back easier. Not easy, mind you, just easier. You can ask a partner, friend or family member for help or contact a debt charity (like Stepchange: www.stepchange.org) or Citizens Advice (www.citizensadvice.org.uk). It doesn’t matter who you choose, as long as it’s not one of those dodgy companies which charge you for advice: if you are paying, you are adding to your money problems, not solving them.
- Find out how much interest you are paying. You can find this information online, but try to find out direct from whoever you owe to ensure you know the correct amount for the products you have, especially if the interest rate is variable. Also find out about any early repayment fees. Contact your financial provider(s) directly if you are unsure of which products you own or your current rates of interest.
- See if you can lower the interest rates. It’s important to do your research here – ask a finance professional if you are unsure about anything. Sometimes you can transfer balances to another product or transfer several debts to a single product. NEVER go to one of those dodgy companies who offer to consolidate all your debts in return for a fee or higher interest rate. If you are uncertain about whether or not you will be better off, don’t do anything until you get advice from a finance professional – preferably someone independent. There are also procedures in place to help people with severe debt problems, so you might be able to reduce your interest by following these procedures – again, do your research and get advice from someone who knows their stuff.
- List the minimum payments. Find out how the minimum payment for each debt is worked out (for example, whether your credit card uses a certain percentage of the balance) and how much you need to pay each month.
- Budget. Find out how much of your income is left over after you subtract your minimum payments and essentials like rent and utilities. If there is nothing left over, contact a Citizens Advice or a debt charity (see above for links) who can help you.
- Pay the most expensive debt first. This isn’t your largest debt, but the debt which charges the highest interest. Pay off as much as you can afford each month while paying the minimum amount on all of your other debts. When your most expensive debt is paid off, you pay off the next most expensive and so on – this is called snowballing.
It’s critical that you don’t add to your debt when you are struggling with money problems. The best place to go (in my opinion) for general advice on controlling your finances is www.moneysavingexpert.com If you feel unable to do anything else, please follow steps 1 and 2. Debt is a common problem and there is no need for you to face it alone.