Most people will have some form of debt, whether it’s from a mortgage, credit card, or car finance. If you have debt in various places, it can feel a bit overwhelming and it’s easy to get lost. But there are steps you can take to break debt down so everything becomes that bit more manageable!
To make it worse, credit providers seem to have a sixth sense around when you’re needing more money. Buy now pay later? More like see you later! Am I right? If you feel like you’re doing a balancing act with your debt, read on for four handy quick steps to help you get on top of things.
1) Know your debts
Debts will look different from person to person. While some people may be sitting with one large debt, many have debts spread across different credit cards, store credit, overdrafts, etc.
When you’re in a constant cycle of minimum payments and compound interest,
it may seem unmanageable. You may even be convinced you’ll never get out of debt before that dreaded mid-life crisis you’ve always been warned about.
However, there are ways to take control of your outgoings, break down your debt, and find the light at the end of the tunnel. The first step is to find out exactly how much you owe, and who to.
Make a note of details such as monthly payments, interest rate, and the total amount of debt.
2) Make a list
Now you’ve gathered all the information about your debts, make a list!
You could list debts from highest interest rate to lowest, or you could list from largest debt to smallest or vice versa.
When paying off your debt you might choose to focus on your debt with the largest interest rate to prevent it from growing into a bigger beast. Equally, if you have several debts dotted around the place, you might want to attack the smallest one at the time like ticking off tasks on a to-do list.
Do what works for you!
3) Create a budget
You may or may not already have a budget for your monthly incomings and outgoings. The formality of this budget will vary from person to person. Some of you will have a mental budget where you know what big expenses are going out on a monthly basis but the rest is just a surprise, really. We’ll call you chaotic neutral.
Alternatively, you may be super-duper organised and have colour-coded spreadsheets with IF functions and all the bells and whistles. Hello, lawful goods.
Many of you will sit somewhere between the two.
Once you have at least a basic spreadsheet that shows your incomings and outgoings, incorporate your debts. Allocate as much as you can afford to pay off debts while still having enough for bills, spending and other financial goals.
4) Cut unnecessary expenses
Even with a budget worked out, you may still have unwelcome expenses like subscriptions that you rarely use. And no, this is not a “you’re in debt because you have Netflix” speech.
It’s time to be a detective. Have a look through your bank statements and work out if there are any more unnecessary subscriptions or expenses that can be cut!
To start, track down any free trials or introductory offers that are about to expire. It’s all too common that we take out a free trial on a service and accidentally end up paying the next month because we forget. How about starting a subscription at an introductory rate, then being shocked when it suddenly increases seemingly out of the blue?
Remember to chase the cause of an unknown charge at the point you notice it’s gone out. Don’t say to yourself “I’ll cancel that later.” You won't, and next month you will get charged again.
Small savings like this can make a difference over the course of a year and could be going on your debt.
Next steps
We hope this has you feeling more optimistic about paying off your debts!
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