Debt is a topic of increasing concern for British citizens at present, as rising household costs – from the supermarket to the monthly energy bill – threaten the safety of already-precarious financial situations across the country. Debt management is not an easy thing to learn but is becoming more necessary for more households to engage with. As someone with debts, what might be the best approach to managing them?
Assessing the Situation
Before you make any sudden movements about your financial situation, you should first design to get the lay of the land. Understanding the specifics of your financial situation might be daunting, and even a little overwhelming, but a little due diligence at the start of your debt management journey can go a very long way to improving your situation.
For one, can you identify how many debt sources you have? Between credit card debts, loans, payday loans and other lending arrangements, there might be multiple debt sources and multiple interest rates impacting the amount you owe. We’ll address this properly in due course, but first, you need to look at your finances from the other side; how much are you bringing in, and how much of that is given to your mortgage or rent, and utility payments? The amount left over is what you have to work with as a high ceiling, and a great place to start when planning repayments.
Prioritising Debts
The next step, then, is to prioritise your debts. If you have multiple debt sources, then some of them may be more pressing than others. Payday loan arrangements with extremely high rates of interest are much more financially damaging than an 18-month 0% credit card with some interest-free months remaining on the clock. Paying off the costliest debts first, as opposed to the biggest, makes it easier for you in the long term.
Of course, you may still find it difficult to prioritise debts – particularly if all are past due in their own way. Debt consolidation loans are a useful tool here, as you can pay off disparate lenders and pull the entirety of your debt burden into one place. This not only has the potential to reduce the net rate of interest you were experiencing but also streamlines and simplifies the repayment process.
Emergency Funds
With your debts in hand and a repayment plan underway, you can start thinking a little further ahead to your life after debt. Provided you budget carefully and overpay where possible, debt freedom could be close at hand – after which you need to do what you can to shore up your financial position. The first step in this undertaking would be to set up an emergency fund for yourself, constituting six months of living costs. This can be a crucial breakwater, should you experience an unexpected emergency cost – and can be instrumental in keeping you debt-free in difficult circumstances.
Professional Advice
Finally, it is important to note that not all financial situations are the same – and that some debt situations can be remarkably difficult to intuit. Where the route out from debt seems all but impossible, a word from an expert could be extremely informative. Debt charities exist that can help the less financially literate in understanding and surmounting their debt burden, while third-party accountants can be great resources for planning for the future.
