Your Step-By-Step Guide to Tackling Debts
The fact of the matter is that wages are stagnant, and costs are soaring. The cost-of-living crisis is very real, and in a society where a lot of people are already living hand to mouth, the effects can be disastrous. Unfortunately, this means that the likelihood of going into debt has increased. The truth is that it is easy to fall behind, even before this, between unexpected bills and soaring interest rates. If left, debts can quickly snowball and then dealing with them feels daunting. This is why we have put together this step-by-step guide to help you to tackle your debts, so let’s get started.
Step 1: Acknowledge the Size of the Debt
First things first, you need to have a good understanding of the size and the scope of the debt. A lot of people tend to bury their heads in the sand to avoid confronting their debt. However, in order to deal with your debts, you need to understand them. This means knowing precisely how much money you owe and to whom you owe it. To do this, you will likely have to go back through your records; remember to include both formal and informal debts. This means any money owed to businesses, banks and your friends and family.
Compile a list of all of your debts; try to be as detailed as possible. This means including things like when the debt started, how much it’s for and how much you have paid off thus far. Putting all of this information together can be daunting and seeing all of the information laid out in front of you can be a little overwhelming. That being said, after the initial anxious feelings, it can actually help to see the numbers. It gives you something to work towards, and if you are lucky, you might find that the damage isn’t as bad as you thought it was.
Step 2: Categorise & Prioritise
After you have compiled a list of all your debts, you need to begin to sort through them. The truth is that some debts are more pressing than others; they might have less favourable terms, higher interest rates or penalty fees. These are the debts that will need dealing with first. You will also need to consider the debts which could have severe detrimental effects on your life should you not pay them. These will be things like car, rent or mortgage payments. Falling behind on any of these could lead to repossession. Finally, the debts with lower interest rates or more favourable terms can take a backseat.
In some cases, consolidating your debts might make the most sense. Consolidating your debts is when all of your debts are combined together, which allows you to make one monthly repayment instead of however many others you would have to make when tackling the debts one by one. There are several ways that you can consolidate your debts; however, if you have a poor credit score, they aren’t all accessible. Some people choose to take out a loan and using a broker like Payday UK can help you to find a loan that works for your needs. The loan then allows them to pay back their debts and replace the individual debts with one more manageable one.
Step 3: Open the Lines of Communication
The next step is to reach out to your creditors directly. In making an effort to open the lines of communication, you might find it easier to curry favour. If you often find yourself struggling to meet payments, then why not try to talk to them directly. They might be willing to renegotiate the terms of your debt to make them more manageable for you. Of course, they won’t always be willing to enter into a dialogue with you, but it is always worth asking the question.
That being said, there are a lot of creditors who will appreciate your honesty and your proactive approach and agree to work with you in order to come up with terms that serve you both. Most of the time, emailing or calling is the easiest way to get in touch with them. However, regardless of your methods, you ought to do your best to make sure that you have a record of your communication and any agreements that you have made. This then means that you have proof should the creditor decide to go back on their word or renege.
Step 4: Develop a Budget
The next thing that you need to do is reassess your budget, if you have one, or come up with a budget if you don’t. Either way developing a better, more detailed budget can really help to get you in control of your finances. Most bills require monthly repayments, and most people are paid monthly. This means that with the proper budgeting tools, your incomings should cover all of your outgoings. Start by listing all of your expenditures. This should include your debt repayments, bills, groceries, and anything that you reliably spend your money on every month. Once you have this, you should know at a glance whether your incomings are going to cover it; if not, this might be part of the problem.
If your income falls short, then you should first look for ways that you can save money in your budget. This might mean looking at comparison sites to swap your energy providers for a cheaper option. You could also cancel any subscriptions that you don’t get enough use out of. It might also mean swapping to generic brands at the supermarket or meal planning to save some money. If this doesn’t free up enough funds to make your outgoings more manageable, you might want to think about other ways in which you could make some extra cash. For example, you could look into taking on a second job or selling your old things to bring in an extra income.
Step 5: Get Help if You Need it
Sometimes, despite all other efforts, your debts will remain insurmountable. If you have progressed through the steps listed above and you still don’t have any solid plan in place to tackle your debts, or if your efforts haven’t worked out, it might be time to explore your options and look into getting some help. There are a number of institutions that you can reach out to for help. You could consult Citizens Advice, the National Debtline or the Debt Advice Foundation, to name but a few. In most cases, these resources are free to use and access; although this isn’t guaranteed, there are some businesses that charge a fee for their expertise. There are also a number of government schemes that you might find helpful. Do your research to look into what you qualify or are eligible for. For example, you should check out the government’s debt respite scheme, which is designed to provide you with the tools and the means to tackle your debts.
To Conclude
If you want to get to grips with your debts and develop a plan to become debt-free, then you need to be proactive. Following the steps above can help you to come up with a solid debt management plan. However, if your debts have spiralled to a level where traditional debt management techniques will prove to be ineffective, then you should think about consulting one of the charities or resources listed above.
