The majority of adults in the UK have debts. Whether you’ve borrowed money to get onto the property ladder, you’ve taken out a loan for home improvements or a new car, or you have credit or store cards, you probably dream of a day when you’re debt-free. It’s not easy to clear debts, but it is possible to move from the red to the black. Here are some simple steps you can take to ensure you’re heading in the right direction.
Evaluate your financial situation
How often do you check your bank balance or open card statements? If you tend to throw letters on a pile and you haven’t got a clue what your current balance is, the first step you need to take is writing down the numbers and getting a clear picture of your financial situation. Check every account you have, and put the figures down on paper. It’s not always an appealing prospect to open statements and check balances, but it’s so important to keep up with what’s going on. If you know what you’re dealing with, this can help you work out the next step.
Prioritise your debts
If you have outstanding debts, it’s wise to get an idea of what needs to be paid as a priority. If you’ve got a mortgage, and you’re able to keep up to date with repayments, you don’t need to worry about making any changes to your current arrangements. If you’ve got a credit card or store cards that are costing you a fortune in interest, you can’t afford loan, rent or mortgage payments, or you have bills that should have already been paid, work out a schedule. Prioritise the debts that are costing you the most, and those that need clearing urgently. If you’ve got savings or you have money coming in, clear pressing debts as quickly as possible. If you can’t afford to do this, there are options available to you and organisations that can help. Check this out for more information. It’s never easy to face up to the fact that you’re struggling financially, but the sooner you ask for help, the better. You can rectify urgent issues, and start working towards a more stable financial future.
Learn to budget
If you don’t already work out a budget once a month, now is the time to start. Budgeting is such a simple way of keeping track of how much you spend and minimising the risk of getting further into debt. If you’re new to budgeting, it couldn’t be easier. All you need to do is write down every payment you have coming in, and then every outgoing payment you plan to make. Make a list of regular outgoings, for example, your phone and broadband bills, electricity and gas and car and home insurance, and then add any one-off costs you plan to incur that month. If you’re going away for a weekend or it’s your partner’s birthday, for example, you may spend more than usual. Once you’ve got all the figures in front of you, you can work out how much disposable income you have, and either save it or use it to pay off cards or bills. Update your budget as you go to make sure it’s accurate, and try not to estimate numbers. If you don’t have exact figures, always use slightly higher numbers to prevent overspending.
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Identify potential savings
If you’ve done your budget, you may be surprised at how much money goes out of your accounts every month. While it may not be possible to lower every cost, there’s a good chance that you’ll be able to make savings in some areas. One of the best ways to reduce spending is to shop around for the best deals on insurance and consider switching energy supplier. You can use comparison websites to find better offers on home, car, pet and health insurance and you can also see if changing your energy or TV or broadband provider could save you money. In some instances, spending a few minutes online could save you hundreds of pounds a year. Take a look at your expenditure on non-essential items. Do you pay for a gym membership you never use, for example, or do you only use the gym a couple of times per month? If so, you could cancel your membership and pay as you go, or you could look into free ways of getting fit, like working out at home. It’s also a good idea to switch up social activities. If you spend money on going out for dinner or nights out, have friends over for something to eat and a few drinks instead. You’ll get to spend time together for a fraction of the price.
Boost your income
If you can make savings at the same time as being able to put a little extra money in the piggy bank, your finances will look healthier in no time. Consider increasing your hours or taking on some casual or part-time work, or think about using your talents or interests to set up a side hustle. Do you speak a different language or play a musical instrument, can you bake amazing cakes or are you famed for knitting beautiful cushion covers or blankets? Use your skills to make a bit of extra money. You never know, your passion may become a money-spinner.
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If you’re in debt, you’re not alone. Most of us have ambitions to be debt-free, but it’s not always easy to climb out of the red and into the black. Take things step by step, and try and work out a plan. Make sure you have an accurate picture of your financial situation, and tackle debts that are costing you money first. Learn to budget, and have a look at your outgoings. You may be able to make substantial savings by comparing prices and being a little stricter with luxury items. Finally, look for ways you could add to your income. It may take time to get to where you want to be, but the sooner you start heading in the right direction, the better.