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Become Debt Free
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Dicing with Debt - Top 10 ways to get out of debt
We all know that debt is bad but mortgages, big bills and the increasing cost of living continues to push the UK further into the red. At the start of June 2007 the average UK household owed £8,816, a figure that rose to £54,771 when mortgages were included (CreditAction.org.uk, 2007).
No matter how careful you are with your finances you probably have some form of debt, and as the 330 people who are declared insolvent or bankrupt every day have found out, it is all too easy to slide that slippery slope (CreditAction.org.uk, 2007).
While it is difficult to avoid debt completely, there are ways to keep your debt down and minimise the inevitable interest you’ll have to pay. Check out our guide to find out how:
1. Budget
There is no magic way out of debt, but making sure that you write up a budget - and stick to it - is one of the best ways to keep your finances in check. Learning to stick to a budget is a great discipline that will help you to save money during more lucrative times and will also get you through those tighter months.
2. Change your credit card
Moving your debt from a credit card where you pay 17 per cent APR to one with an interest-free period can save you up to £195 a year*. However, you will most probably have to pay a transfer fee which is typically around £50 or three per cent of the balance.
If you have a large balance and you don’t think you’ll be able to pay it off before the end of your interest-free period, you’ll probably be better off going for a low life-of-balance card instead.
Click here to Compare Credit Cards.
3. Switching
Moving to a cheaper energy provider can save you £207 a year. Switching energy provider and opting for a cheaper, more appropriate package is quick and easy and the amount that you can save really makes it worthwhile.
Save money online - Compare Gas and Electricity.
Although you can’t switch to a different water provider you might be able to have a water meter installed so that you only pay for the water you use. Then you can save even more simply by taking showers instead of baths and turning the tap off when you brush your teeth - and do your bit for the planet too.
You should also shop around for new, better Home Phone Deals and Broadband Packages since you can even get free broadband with some phone packages. Switching to the right home phone and broadband packages can save you £140 and £180* a year respectively.
Switch and save - Compare Home Phone and Broadband packages.
4. Check your benefits
Millions of pounds in benefits are left unclaimed each year and often it is the people who need the money the most that don’t realise that they’re entitled it, such as working single parents and the elderly.
Entitledto.co.uk (see Useful Sites) is a great website where a simple, five minute questionnaire will let you know exactly what you’re entitle to - but make sure you claim as soon as possible as benefits are calculated from the date you claim not when you became eligible.
5. Save your energy
Making a few simple changes around your home can have a huge affect on your finances. By lagging your boiler, draft proofing doors and windows and turning down your thermostat can really reduce your energy bills.
Click here to read our article on how you can save up to £860 a year by changing your home habits.
6. Clear your savings
If you have savings but regularly only make minimum payments against your debt then you should pay off anything like credit cards or store cards using the money you have.
Although you might not want to, you need to realise that anything you earn in interest - even in a tax-free ISA - will pale in comparison to the amount you’ll be paying in interest on your credit card. Then, once your high-interest debts are clear you can start to put a small amount aside each month.
7. Remortgage
Remortgaging your home can free up money that can help you pay off mounting debts that, if left unpaid, could culminate in you losing your home. However, you have to be careful not to put your home at further risk when doing this - make sure that you speak to a trusted advisor and shop around for the best deals.
8. Ditch the PPI
Payment Protection Insurance is generally seen as a rip off by many financial pundits. Costly but difficult to claim, repayment insurance has, in the past, been mis-sold to consumers. Better, and cheaper than PPI is Income Protection which is recommended by consumer watchdog Which?
As well as dropping the PPI you should also make sure that you don’t automatically renew things like car and home insurance without shopping around to make sure you’re still getting the most competitive deal. As a new customer you can take advantage of the best deals, so switching to a new provider is usually the best way to save on insurance and most will also let you take your no-claims bonus with you too.
9. Consolidation is a last resort
While loans can help, and taking out a consolidation loan to cover all your debts can make things easier for a while, you should try to resist the temptation to do so. Getting yourself into more debt in order to pay off what you already owe is rarely a good idea, and the majority of debt problems occur because of poor money management. This means that for the large number of people who need to change their relationship with money, debt consolidation could just lead to further debt and repossession.
Call me back to discuss a debt consolidation loan.
10. Talk about it
Having dealt with 1.4 million debt problems last year, the Citizen’s Advice Bureau (CAB) (see Useful Sites) can help and advise you on how to deal with your debt.
If you’re struggling to keep up repayments you should also talk to your creditors. You might be able to work out a series of lower payments or freeze your interest for a while. The CAB would be able to advise you on the best way to go about this, but being honest about your money problems will help.
* house.co.uk, The Sunday Times (22/01/06), London Metro (08/01/07)
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