Your Debt Problem
First, it is important to be honest with yourself about the nature and seriousness of your debt problem. Don’t punish yourself – there are plenty of people in the same situation or worse than you. The most important thing is to take control of the problem and find solutions.
Don't go into denial over your debt. It won't go away if you ignore it - it will only get much worse and further out of control.
Temporary Debt Problems
Perhaps your problems are temporary and your income has suffered because you are between jobs, are off work because of sickness or temporary disability or you have undergone some other momentary lapse in your income.
Maybe it is that you are struggling to keep control of all your debts and missing payments but you don’t know what steps to take to get organised before the problem gets more serious.
The time to act is now before your problems become much more serious and become chronic. You can consider the following 6 point plan of action:
- Economise
Calculate all your incomings and outgoings. Make sure you detail everything you spend, money on and cut out any unnecessary expenditure. Work out exactly how much you need to spend on essentials. You will have to make sacrifices but they will be well worthwhile in the long run. Get tough with yourself.
- Prioritise
Prioritise your repayments! First pay those for which you are being charged the most interest, and the most important ones like your mortgage and utilities. If you have more than one credit card or loan, prioritise payments so that those with the highest interest rates are paid off at higher levels. You might consider switching the balance of one credit card to another that has a lower interest rate (see Be a 'rate chaser'). The wisest action is usually to pay off mortgage arrears and credit card debts, etc, instead of saving money. Otherwise, the income from your savings or the savings themselves will be wiped out by the interest from your debts. Bear in mind that you also pay tax on your earnings from savings so you might be getting less than you think.
- Maximise
Think about ways you can maximise your income. Are you claiming all the state benefits or tax allowances that you can? Can you earn more with overtime or even a second job? Is there anything you could sell to help pay off the debt? Could you even move somewhere else to live more cheaply and make money from a property sale?
- Be a 'rate chaser'
You can ‘play’ the credit market and become a 'rate chaser'. If your debts haven't spiralled to the extent that your credit rating has suffered, you can play the market by transferring balances of loans to those with a lower rate. Or you can transfer credit card debt to cards that offer 0% interest for a limited period - once that period has finished, transfer to another card that offers 0% interest, and so on.
- Consolidate through a loan
Get advice from a debt counsellor before taking out a consolidation loan. If you find a deal where you will be paying less interest overall then it is a viable option but you could fall into the trap of paying out more albeit in one package. Also, unless worked out carefully, this type of loan might prolong your debt, spreading the payments over a longer period, and while the lower monthly payments might seem attractive, you will pay more interest in the long run.
- Consolidate through property re-mortgage
Re-mortgaging as a means of consolidating your debt is an option, but as with consolidation loans, it should be worked out carefully with professional advice. Don't kid yourself borrowing more will get you out of a hole – it could just make your problems worse.
If you consider your debt problem to be beyond the scope of the above 6 point plan, then you may need professional debt management help. We have identified three main areas that can solve your debt problems.
Find out how Kevin and Sarah were able to reduce their debts by 65% when they used one of our debt councellors or complete the form on the right for a no obligation assessment of your debt situation.