Today we have some advice about how to handle debt for our UK readers. Enjoy!
Managing your money isn’t an easy task. Every month you need to ensure that the money you have coming in can cover all of the essential outgoings in your household, paying for everything from bills to the grocery shopping.
For many people credit cards, loans and store cards add to the monthly mix of payments we need to make. Each of these can, of course, be a sensible way of paying off a big ticket purchase such as a car or home improvement, but things can start to get tricky when you’ve got several debt payments to juggle at once. One in four families owes money on a personal loan, while there are about 60 million credit cards in use across the UK. A lot of people, therefore, are likely to have both of these forms of borrowing to pay back.
So, what do you do when you have multiple debts to handle? Here are some top tips to help you to stay on control.
Understand your debts
Firstly, dig out all of your paperwork. What do you owe? Who do you owe it to? When do the payments come out of your account? Or, if you don’t have a direct debit, when should the payments be made? How long will it take you to pay it back? Being able to answer these questions is important – without this knowledge you’ll never be fully in control.
Prioritize your debt
Debts are often split into ‘priority’ and ‘non-priority’. This isn’t based on the amount you owe, but relates to the severity of the consequences involved in not paying.
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Priority debts include court fines, your Council Tax, TV License, energy bills and mortgage payments. Not paying these off could result in a visit from the bailiffs or mean that you end up in court or lose your home.
This doesn’t mean you shouldn’t pay off non-priority debts, as the consequences of missing payments for loans, credit card and your overdraft will still be very serious – but it does mean that the first list of debt types has to be right at the top of your hit-list.
Try to clear the most expensive debts
Once you understand all of your debts, it helps to try to pay them off one by one; the fewer debts the better, after all. Ideally, you’d account for the minimum payment for every one of your debts and then use any extra cash you have available to target the most expensive one in a bid to pay that off. So, for example, your credit card might well have a high interest rate and diverting extra cash into repayments on this might stop you paying too much extra on your debt. Be careful with loans or other products that may carry a fee for early repayments.
Take advice if necessary – and consider consolidation
If that seems daunting then don’t worry. Getting on top of your debts is a tricky process and it might well make sense to consult an expert for advice. There’s a wealth of advice freely available if you’re struggling. An expert might well tell you that debt consolidation would be a smart way forward. This involves merging all of your debts into one – with one payment date and one interest rate to take account of. It can make it easier to track – but you must check that you don’t end up paying even more as a result (read more on debt consolidation loans here).
Don’t take on any more debt
For the time being, it makes sense to draw a line under your borrowing. Pick off your debts one at a time and don’t take any more on until you feel in control and are comfortable with the way you are managing your money.