If one of your new years resolutions is to get your finances in order this year, then this brief guide may be able to help you. Debt is a big problem in the UK, with around two-thirds of the nation in some form of financial difficulty. There is no quick and easy solution, but there are ways you can help ease the burden.
First of all, take stock of your finances. Gather all your household paperwork together, sit down with a calculator or a spreadsheet on a computer and work out the exact position of your finances. The aim is to get a clear picture of just how much you pay out each month, and how much of it you would be able to reduce.
Once you know your total debt, add up exactly how much you have coming into the house each week or month after tax and national insurance. This will give you a clue as to how much disposable income you will have.
Now, once you have these two figures, you can start to do some
debt management. The money you spend on essential living costs like rent or mortgage, council tax, TV licence etc will remain the same, so subtract these figures from your income. Set yourself a monthly food and fuel budget and subtract this amount too. What you're left with is your disposable income, and it's with this that you will be paying off your debts.
Total up any loans, credit cards, store cards and overdrafts that you have, and make a note of this figure. You may want to contact your debtors to get a settlement figure at this point, and it's also worth getting a copy of your credit file to make sure you don't forget anything. Once you know exactly how much you owe, and how much you will need to clear it off, you have a decision to make.
The first option is to arrange with your debtors to overhaul your repayments to something more affordable. This will probably mean spreading your payments over a longer term, and some debtors may not let you do this. Another option is a
debt consolidation loan, if your credit rating allows. Borrowing the amount that you owe will enable you to pay off all your old debtors and create a single monthly payment to one company instead. This option will work best for debts totalling under £15,000.
For debts above this, consider contacting a
debt management company. These will mediate between you and your debtors, and either arrange with them to freeze any interest and reduce your monthly payments, or they may even pay off all your debts. You would then just have the one monthly payment to the management company instead. Be honest with them. Tell them exactly what you can afford to pay each month, and they will be able to negotiate a payment plan to suit your finances.
Once you have a plan in place, stick to it. It's all too easy to fall behind with repayments again, and then you'll be right back where you started. Whatever money you set aside for repayments, forget about. It's gone, you can't spend it! There may be times you despair of ever being out of debt, but as long as you're careful and stick to the repayments, you will break free.
