Top tips if you’re struggling with debt

Do you spend every month counting down the days until your next payday? Do you spend sleepless nights worrying you won't be able to pay your bills?

If you do, you certainly aren't alone. Research by the debt charity StepChange shows there was an 11% increase in the number of people contacting them for debt advice last year, with 1,100 people seeking help from StepChange every single day.

If you are one of the millions struggling with debt, you will probably be feeling vulnerable, scared and worried about what your future holds. But there are steps to take to help you get back in control of your finances and start tackling your debt once and for all. Here are our five top tips.

1. Prioritise your bills

The first step is to prioritise your bills. Grab a piece of paper and list every single bill you need to pay – this should include your mortgage/rent, council tax, electricity and gas, credit card bill and so on.

Next, highlight the ones that are your priority debts. These are the most important debts to pay as the consequences of not doing so can be serious. Your priority debts are as follows – not in any particular order, although mortgage or rent should be towards the top of everyone’s list:

  • Mortgage/rent
  • Council tax
  • Secured loan
  • Tax, VAT, National Insurance
  • TV licence
  • Gas and electricity bills
  • County Court Judgments
  • Child maintenance
  • Hire purchase agreements
  • Phone bill

If you don't keep up with the repayments on these priority debts, you could lose your home, or your gas, electricity and phone could be cut off, or, in the very worst cases, you could even face imprisonment. So you need to focus on paying these debts first.

Once you've done that, make a list of your non-priority debts, noting down the annual percentage rate (APR) they charge as you go. Non-priority debts include the following:

  • Credit cards
  • Store cards
  • Overdrafts
  • Unsecured loans (loans that are not secured against your home)

Rank these in order of their APR, with the highest APR at the top. This is your most expensive debt and therefore, when it comes to tackling your non-priority debts, it's the one you need to concentrate on first.

2. Monitor your spending

To help you get to grips with where your money goes each month, create a spending diary. Get a notebook and jot down exactly what you spend every day. This should include absolutely everything – even that chocolate bar you bought at the newsagent on your lunch break.

Doing this will not only help you to build up a picture of what you are spending where, it will also prove useful in the next step...

3. Draw up a budget and make cutbacks

To assess whether you are spending more than your monthly income, gather together your bank statements and work out what your income and outgoings are – your spending diary will come in handy here.

Then, subtract your outgoings from your income to see whether or not you're left with extra cash.

If you find your outgoings are greater than your income, go through them with a fine-tooth comb and see whether you can make any cutbacks. This doesn't need to be anything drastic but it could involve cancelling your gym membership or a magazine subscription, for example, and bringing your lunch into work rather than buying it every day.

It’s certainly worth scrutinising your bank account in case there are any unwanted and unnecessary direct debits or standing orders that you can safely cancel. You could be surprised at how much you save by making even the smallest of cutbacks. And all of this will help to reduce your outgoings and leave you with more cash to put towards your bills.

While you're doing this, it's also well worth taking the time to see if you can switch to a cheaper energy deal or mobile phone contract. And when your home insurance and car insurance is up for renewal, be sure to shop around and compare what's on the market to see if there is a cheaper deal.

4. Boost your income

It may also be necessary for you to find ways to increase your income. The most obvious way to do this is to take a second job or, if you have grown-up children living at home, ask them to start paying rent if they don't already.

These aren’t always easy options, of course, but drastic measures are sometimes required to tackle a debt problem.

You should also ensure you're getting the benefits you are entitled to. Although you're more likely to be entitled to benefits if you’re out of work, have children, are on a low income or are ill or disabled, it's worth checking no matter what your circumstances are. Use a benefits calculator such as this one.

5. Seek help

If you think your debt problems are temporary – perhaps because you recently lost your job and you're now looking for work – talk to your creditors as they are likely to be sympathetic and supportive. Do this sooner rather than later and try not to bury your head in the sand.

Explain your situation and see whether your creditors will freeze the interest on your debts for a time – that way your debt will at least stop growing in size. Or ask if you can reduce the amount you pay back each month.

If the person you speak to isn't helpful, ask to speak to someone more senior, and keep a record of all phone calls you have made, including the name of the person you spoke to.

If your debt problems are more serious, it's well worth seeking free advice – whatever you do, don't pay for this. StepChange is one of the free places to turn to, but Citizens Advice and National Debtline are alternatives. Speaking to one of their advisors should help to get you on the road to recovery.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.  

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