How to Get out of Debt

Getting out of Debt
Image courtesy of Stuart Miles /

Debt is no fun. It hangs over you and can make your life miserable and stressful. In this post I look at how to get out of debt as well as providing suggestions on reducing your monthly expenditure.

Unfortunately getting out of debt is not an easy task and can be different depending on your own personal circumstances. It can be done though and this guide provides information on what you can do to make a start.

I have put together this guide to help you through and hopefully it will help you get out of debt.

1. Start a Debt Reduction Plan

Realising you need to start sorting out your debts is the first stage to recovery. Admitting you have a problem means you are facing up to things and can start to make some changes to put things right again. When starting your Debt Reduction plan, you are assessing your expenses and income to see if anything can be changed.

Work out all of your Monthly Income

Write down a list of money you receive each month. For example your wages, benefits, pension or other earnings. Use a pen and paper or a spreadsheet to make a note of the amounts.

Work out all of your Monthly Expenses

These include things such as your Rent, Mortgage, Utility Bills, Credit Card Bills and Clothing etc. If you are not sure of some of your expenses calculate them using a worse case scenario. If you are still unsure make notes of what you are spending each week to build up an idea, or dig out the receipts for your purchases if you still have them.

Split up your Payments

Divide your payments into two categories, payments that are flexible and payments that cannot be changed. Payments that are flexible are expenses such as clothing, Sky TV Subscriptions, Gym memberships or food shopping. Expenses that cannot be changed include examples such as your Rent, Mortgage, TV License or Council Tax.

Other examples of payments you cannot change include Priority debts. Click here to find out more about them.

Making savings

By splitting up your payments you may be able to identify areas of your spending where you can make savings. With the money you have saved you should start to pay off more towards your debt. The best way to do this is to pay off the debt that is costing you the most in interest first and work your way through until you are debt free.

Help, I cannot reduce my monthly expenses and I don’t have enough money to pay my debt

If you are in this situation carry on reading to find out more on what you can to resolve the situation.

2. Organise all of your paperwork

Getting organised is important because you need to know what you are up against. Having all your paperwork in order will make it easier to know where you are with your money and allows you to check that you aren’t paying for things you shouldn’t be.

Locate all of your Bank Statements and Utility Bills

Put them into a folder and sort them in date order. You could even have one folder for paid bills and another folder for unpaid bills.

Being organised will help you in the future. It would also be worth checking that there aren’t any mistakes on any of your bills. If there are you should get these sorted. Sometimes you may find a direct debit is still active that shouldn’t be. Luckily you can get the money back and the issue sorted quite easily with your Bank.

Sort out the Debt Collection Letters

If you are already at the point where your debts are with Debt Collectors, make sure you file all the letters you receive. Doing so will make things easier for you should you require help from one of the Debt Charities. See this article on how I stay organised with my debts.

3. Cutting the Costs of your existing Credit

If you are still up to date with your payments and your credit rating is still in one piece, you may be able to cut the cost of your borrowing.

Credit Cards

You may be able to get a 0% interest credit card deal. You could then move your existing credit card debt to the new card and start paying it off interest free. Be wary though as sometimes there are fees to make a balance transfer and it could mean you pay out more in the long term.

Personal Loans

You may be able to replace your existing personal loans with a lower interest loan. However there may be penalties on your existing loan for early repayment so it is worth checking you will actually save some money before doing anything.

Payday Loans

If you are taking these out to make ends meet then stop. It will only make your situation worse (trust me I had six of them). If you are currently stuck rolling over or deferring your payday loans, try to sell something on eBay or pick up overtime to make the money to pay off the loan in full. You will feel much better to be rid of them.

For ideas on escaping the Payday loan trap, see this article here.

4. Making Further Cuts

Switch your Energy Provider

You may be paying more than you have to for your energy supply. It is worth using a price comparison site to check if you could get a cheaper deal.

Cut your Food Costs

Shop around. Try using the My Supermarket website before you go shopping to see where things will be cheaper. I tend to do my weekly shop on this site and then print out a list to take to the supermarket I selected for that week. It depends on who was cheaper at the time. Alternatively trading down to none branded goods can also reduce the costs.

Cut costs of other goods such as clothing

Charity shops are sometimes a treasure trove of bargains. Why pay full price if you don’t have to?

Cut Travel Costs

Use the car less, walk more. Sometimes taking the bus can work out cheaper as well. However if the buses are like they are where I live, you might not want to.

Cut the cost of your Cable TV or Sky Subscription

Sometimes you can call up to cancel your service and each time I have done this, I was offered a big discount to remain as a customer. Be aware that you will be tied into a contract again so will not be able to cancel until the contact expires.

Alternatively you could just get rid of the service altogether to save some money, especially if things are tight.

Ideas for making or saving money

I wrote a post a while back called 101 Ideas to Make or Save Money. You can read it if you like or if you have found something that works for you, let me know.

5. Talking with your Creditors

If you cannot maintain your monthly repayment amount, you can try speaking to your creditors. Be advised that reduced payments or missing payments will damage your credit rating.

Most companies will be sympathetic towards your situation and will often agree to a temporary arrangement to pay whilst you get back on top of things. However some companies are not interested as I found out so your mileage may vary.

If you are not confident enough to speak to your creditors, you may wish to seek help from one of the organisations listed in the helpful links section of this Blog. Visit the Debt Help page to find out more. These organisations can offer free impartial advice and can also help you towards becoming debt free.

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