prabhuDebt is something that many people are embarrassed or ashamed to talk about. In reality, a lot of UK adults have some sort of debt. This could be from mortgages, student loans or credit cards.
Getting on top of your debt should be a priority regardless of the amount you owe. Having debts hanging over you can affect your mental health which has a knock-on effect on other areas of your life. Here are some tips to help you reduce your debt.
Create a budget
Before you can start climbing out of debt, you should take some time to look at your financial situation. It may feel easier to bury your head in the sand and ignore it, but you won’t achieve anything this way.
Start by making two columns, one for income and one for outgoings. This way you will be able to see how much money you have to play with once the essential bills are covered. A visual aid is also a good way to spot any duplicate bills or areas you can cut back in.
Once you have your finances in order you can create a budget. This could focus on areas to cut back on such as takeaways or nights out. Take the money you save and put it towards a financial goal.
Prioritise high-interest debt
Debts with high interest rates end up costing you a lot more in total, so make sure you are paying them off quickly. Although all debt is likely to have interest rates, rank yours in order of expense and work through the list.
There are ways to pay less interest. Making overpayments if you are able is a great way to bring the total balance down and the interest with it. Make sure you won’t be penalised for this, though.
Another way is to consider applying for debt consolidation loans. These combine all your debts into one, leaving you with an affordable monthly payment instead. This is a great option for those on a budget or those who struggle with managing multiple payments.
Build an emergency fund
Unexpected expenses are incredibly stressful. They can range from a broken-down washing machine to long-term sickness. It is never too late to start an emergency fund.
Start a new bank account solely for this purpose and start adding to it monthly. Even if you put in £10 per month, you will have £120 at the end of the first year. Try to pick an account with a good interest rate so you can make the most of your savings.
Long-term financial planning
Get into the habit of regularly reviewing your financials. This could be monthly to begin with and then six-monthly once you feel a bit more confident with your spending habits.
Being flexible with your financial goals, too. The new car you dream of may have to take a backseat whilst you are paying off debts or saving for a new washing machine, for example. As long as you have your goals in mind with every decision, you can continue to work towards them.
