Are you still struggling to find a New Year’s resolution that you will actually keep and that will actually benefit your life? Then why not make this the year where you get out of debt? Or at the very least, you can get it under control and work out a manageable plan to get out from under the harrowing weight of debt and stress. The average household has a debt which sits upwards of £12,800 in the UK and over $137,000 in the US, which does not include mortgages and student loans. It can be a real struggle that saps your money, gives you sleepless nights, and can make you second guess every purchase you make. But there are ways you can manage your debt, pay it off and have a clean slate at the end of it all.
Here are some tips to help you get out of debt and start again.
Manage Your Debt
No matter what your situation is, the first step towards becoming debt free is to get it under control. If you have multiple debts, if might be worth considering a consolidating credit card. This way you can cover your debt with one payment, and then only have to focus on the one repayment each month. As well as only having to think about the one interest rate,it can greatly reduce the stress that surrounds debt, can help you to physically see where in the month you need to make cuts or to put aside money to make to one payment, and can give you the space to make a plan and see where the end if the debt will be. Where a consolidation loan doesn’t get rid of your debt straight away, it does lessen the stress by making it easier to manage.
One other way you can get on top of your debt – particularly if your debt is much smaller or newer – is to contact a debt management charity like step change for help. Charities like this deals directly with the companies you are in debt to, and become the middleman between you and them, and they can often negotiate a freeze in interest rates, either temporarily or permanently. You work together to work out a budget you can stick to including how much you can afford to pay each month towards your debt. If you deter on a payment, however, the companies have the right to step out of the agreement. If you don’t want them to become a middleman, you can still receive the same help with budgeting. Where this process can be a good option for some, it does have a huge negative effect on your credit score. So if this route is for you, you are going to need to work on improving your credit score at the same time.
Your Credit Score
No matter what your situation is, you should start improving your credit immediately. Your credit score is incredibly important for when you are looking to buy a house or get anything on finance in the future, and can take some time to build back up. So don’t wait until your debt has been paid off. In fact, paying off your debt in time will help to improve your credit score. All you need to do is make sure that you are paying your bills on time, don’t try and get new things on finance, and live within your budget. If you can’t quite afford to pay for something all in one go, like your car insurance, then break into down into monthly payments, you might end up paying a little more in the long run, but it’s better than getting into debt over.
If you can control its usage, pay for big things you can afford on a credit card, like plane tickets and house deposits, but immediately pay it off. This can help your credit both at the bank and with your credit card provider. Plus, some credit card companies have a bonus feature where you can earn flight miles when you pay with the card, meaning that you can save money later on.
Cancel Any Unnecessary Bills
While you are building your new budget, see what outgoing you have that are unnecessary. You might find that you have entire bills that you live without – like Spotify or Netflix. Or you might just need to negotiate; can you cancel your gym membership, or find a cheaper one? Can you simplify your TV package by removing sports out of season, or movies and just use pay-per-view? You will probably see that you’re paying for something you haven’t thought of for years, like a magazine subscription.
Saving money doesn’t have to mean you have to go without all luxuries, but it does mean moderating what you spend your money on. Why not start switching takeout night for a new recipe night, or a cinema trip to a home movie night.
Lose Contact With Credit Cards
Once you have paid off and finished with your debt, then say goodbye to the credit cards. If you want to keep one for things like flight miles, then do, but be 100% sure that you won’t dip into temptation. Even go as far as to give it to someone you trust so that you can’t use it for anything else.
Delete the card details from any online shops you’ve used them in, shred any checkbooks that go with the cards. Obviously, you need to keep some of the paperwork just in case but file them away – out of sight, out of mind.
Your fresh start can now begin.