When debt gets out of control, whether you’re dealing with unexpected emergencies or unplanned shopping sprees, debt can quickly become a weight around your neck that affects both your physical and mental well-being.
Despite the fact you may feel overwhelmed by logically tackling your debt, taking it one step at a time you can learn how to pay off the debt in even the most impossible circumstances. For example, if you hold any credit card debt this can be particularly damaging and it’s important to learn to start repaying it first
Debt management starts the moment you identify what type of debt you have, be it a mortgage, a car loan, or credit card debt. Understanding the amount and type of debt will help you learn how to pay it off. Here at 10 tips offered by experts in the finance field to create a personalised debt repayment plan
1. Set a budget
One of the primary reasons that people in the UK find themselves struggling with debt is that they don’t operate within an established budget. Before you can pay off the debt, you’re going to have to learn to manage your money and scale back your spending.
Whether you get the help of a financial advisor, use an online finance tool, even create your own Excel spreadsheet, it doesn’t matter. Do whatever helps you account for your monthly income and expenses, and helps you highlight your needs and wants.
2. Repay your most expensive loans first
The next step in the process is to highlight the interest rates you’re paying from high to low. If you have a credit card this will always be at a high-interest rate. The goal is to increase your payments on the debt that has the highest annual percentage rate.
While you continue to make minimum payments on the rest of your loans. You will continue this process until you reduce the loans to a more manageable level, gradually ridding yourself of the debts that are at the root of your problem.
3. Start paying more than just the minimum
Once you start making a dent in your most expensive debt the next step is to start paying more than just your minimum amounts. Paying minimums is just a debt trap; it usually just prolongs the debt strategy and only allows for clearing 2% to 3% of any outstanding balance.
You will need to be committed to making weekly, rather than just monthly payments. For example, if your minimum payment is £100 you should start by trying to find ways to double it to £200.
4. Balance transfers can be advantageous
If you’ve managed to pay down your highest interest loan within a few months. they may want to consider transferring the balance of any other credit cards to a zero-interest card. Some providers will offer zero-interest balance transfers, but you must remember that the balance transfer will expire, and the debt will need to be paid before this date. Otherwise, you will end up paying a far higher interest rate. Use balance transfers carefully and they can save you hundreds of pounds of interest.
5. Stop using Credit Cards
Unless you stop accumulating unmanageable debt, you’re just going to perpetuate the cycle. When you go shopping, you’ll have to start leaving your credit cards at home. Regardless of whether you are getting rewards or cashback bonuses, reliance on credit cards will never help you get your finances under control.
6. All bonuses are used to pay off debt
It is common for people across the UK to receive holiday bonuses or other such rewards during the year. Many people use these as a treat. But if you find yourself trying to learn how to pay off debt, you must resist the temptation to spend this bonus on luxury items you don’t need. If you know this bonus is coming, forget about the latest games console or holiday in Majorca, put it towards your debt.
7. Remove your information from online stores
One of the easiest to run up unnecessary debt is online shopping. Most retailers will allow you to store your credit card information. This is in part to ensure you can quickly check out without ever having to worry about what you’re spending.
If you find yourself paying for numerous services on your credit card or it is linked to card accounts, this needs to stop. Delete this information, even go as far as closing your account for a few months until you get your spending under control.
8. Sell expensive unused items and gifts
Most people have a variety of either wedding gifts, birthday gifts or even Christmas presents just gathering dust in various parts of their home. Selling these items on eBay or another such market, not only helps you declutter but, also, by doing a little bit of research, will help you set a reasonable price and take another step in learning how to pay off debt.
9. Change your spending habits
The main reason people across the UK find themselves struggling to pay off debt is that they have unhealthy routines and habits. Unless you change these, you’re just going to find yourself in the same mess. Start scheduling what you’re going to do every day, week, and month, taking note of spending habits. Keep account whether you need to eat out for lunch 3 or 4 times a week and grab that latte on the way to work every day. Pick one of these habits to eliminate each month. You’ll be amazed at the difference small sacrifices can make when it comes to paying off debt.
10. Milestones should be rewarded
The debt trap is primarily psychological and digging yourself out of this hole won’t happen any faster if you view it as a punishment. So, set yourself achievable milestones and when you’ve reached these goals reward yourself.
For example, when you pay off your largest credit card debt, treat yourself to a night on the town. For example, if you have £30k worth of debt and you reduce it to £20k this year, this is something worthy of celebrating. It’s okay to pat yourself on the back.