Sometimes, managing debt effectively can be as simple as learning to control it properly. There are two main ways you should try to do this: by stopping it growing, and by ensuring you can’t accumulate any more debt.
Budget with your money
You might surprise yourself with how much easier managing your finances can be with a budget. Too many people simply earn their salary and spend it as they go along, which can often mean they fall short as the month goes on. If this causes debt repayments to go unpaid, the problem can become quite serious.
However, by working out a budget, this scenario can often be avoided. For example:
• You earn £1,000 per month (after tax)
• Rent/mortgage payments are £350 per month
• Total household bills come to £200 per month
• Average spending on groceries is £100 per month
• You are repaying a loan at a rate of £200 per month
In total, your essential outgoings are £850 per month, leaving you with around £150 – which you can either spend, save, or make overpayments towards one of your commitments.
If you don’t budget this way, it’s much harder to gauge how much you can spend on non-essential things – and this is how many people end up overspending.
Of course, not everybody’s situation is this simple. It may be that your outgoings exceed your income – in which case you should speak to a professional debt adviser as soon as possible to discuss your options.
Get rid of unnecessary credit
While repaying your debts, consider whether you really need those extra credit cards and overdraft facilities. While carrying a credit card is often a good idea as a financial ’safety net’, having more than one is generally unnecessary. Overdrafts are rarely essential unless your income or outgoings are unpredictable (e.g. you have a commission-based salary, and/or a variable-rate mortgage).
In general, if you do need to keep your credit facilities available as a safety measure, then keeping your credit limit as low as possible will reduce your chances of any debts becoming unmanageable.
Arrange a debt management plan
If you find that repaying your debts under the original terms is too difficult, then a debt management plan could help. A debt management plan is an informal agreement with your creditors in which you will make reduced monthly payments towards your debts. It may also be possible to negotiate a freeze or reduction in interest payments.
It’s possible to arrange a debt management plan alone, but this can be a time-consuming process which requires a lot of communication with your creditors. For this reason, many people prefer to use a professional debt management company. They will negotiate with creditors on your behalf, and because they will have dealt with many people in your situation before, the process is often a lot quicker, with less effort required on your part.
Of course, debt management plans are not for everyone. If you’re struggling to repay your debts, you should always speak to a professional debt adviser to discuss the available options.
