Getting (and staying) in control of your debt – a complete guide

Does trying to tackle your debt problem feel like the last thing you want to do?

What if we told you you’ll feel an enormous sense of relief if you just follow the steps we’re laying out in this guide?

You’re absolutely not alone if you’re worried about debt, at any one time in the country around 1 in 6 of us are facing debt that looks as if it will never go away – arrears, reminders and worse, without the income to get us from one month to the next paying it all.

It’s difficult to know where to start when you’re tackling financial problems – but follow these steps and you’ll be closer to having control of your finances back by the end…

  1. Find people who’ll support you

Part of the reason people ‘bury their heads in the sand’ and ignore debt is because it’s genuinely frightening to face up to the problem.

However, there’s a big issue with putting this pain off – the debt will chase you – and no matter how much you want it to go away, it’s going to catch up with you, and you’ll often owe an increasing amount of money the longer you put it off.

It can really help to have some allies on your side. We recommend starting with a friend or family member who’ll offer you some non-judgemental support. Even if all they do is chat to you on the phone or come around for a coffee while you’re working through paperwork and calls – it’s nice to have someone there who’s ‘on your side’.

There are some great companies who’ll help you too – even if you’re not going to chat with them on the phone. As an example, here Face The Red reviews – so if you think you’re going to need to seek professional support with your debt, you’ve got people who’ve done some of the legwork for you, working out who are reputable companies you can approach.

  1. Get an understanding of where you are with money

It’s really important to get a true understanding of where you are with debt right now.

This might feel painful – but you’re not going to be able to handle the problem unless you’ve got a very real understanding of what you owe, who you owe it to and when it needs to be paid. You don’t have to pay it all right now – but you do need to know the important facts and figures.

Gather all the paperwork that relates to money you owe and start making a list – on it you should note:

  • Who you owe money to
  • The most recent amount they say you owe
  • Account numbers and reference numbers

It’s helpful to have this in one place rather than scattered around in different letters. It’s worth adding to this list any money that you may owe friends and family too, there might not be agreements in place, but at this stage you need to know where you are.

  1. Work out what’s the most pressing debt

There are some types of debt that are more pressing then others. This doesn’t mean prioritising debt that companies are shouting the loudest for – instead, understanding what you’ll get in the most serious legal trouble for if it goes unpaid.

Money owed for any of the following should be prioritised before any others:

  • Rent or mortgage costs
  • Gas and electric bills
  • Court fines
  • Police issued fines and penalties
  • Income tax, national insurance or VAT
  • TV licence
  • Council tax

The debts above have more serious consequences than any other types of debt – including credit cards, overdrafts, unsecured loans, water bills, benefit overpayments, phone bills – etc. You’ll still need to pay everything off – just understand which you should deal with first.

  1. Put a quick budget together

When it comes to paying debts off, you’re going to need to understand truly how much you can pay – as it’s no use committing to a certain amount – only to find out you can’t repay it the following month.

To do this you’re going to need to create a budget.

Work yours out by noting down all the income that comes into your home. When you’ve got that, make a list of all your essential outgoings – by essential we mean the things you absolutely cannot live without, i.e. utilities, rent, food and clothing costs, work related travel costs – and so forth.

By taking away the ‘essential costs’ figure from your ‘income’ figure you’ll be left with an amount known as your ‘disposable income’ – money that is left over when the essentials are covered. Your creditors might want to see this working out – and they also might want you to prove it to them, so they know you’re paying back as much as you can.

  1. Deal with priority debt

Now, you’re going to need to talk to the companies you owe money to – but don’t worry, this isn’t going to be nearly as bad as you think.

Don’t forget, these companies want you to pay them – so in most cases they’re going to be extremely understanding and work with you to put together a plan that means they’re recovering some of their money.

The fact that you’re working through your finances and actually talking to companies puts you in a strong position. Don’t forget, a lot of the other people they’re trying to deal with are just not answering their calls. You should commit to paying off priority creditors on a ‘fair’ basis – i.e. paying as much as possible while ensuring you’re making a contribution to each.

  1. Talk to non-priority creditors

After you’ve talked to your priority creditors, you should then move on to talking with the lower priority companies you owe money to. Let them know that you understand that your priority debts need to come first but that you’re serious about paying them back. Even a small contribution to the debt is better than nothing – especially if it’s made with a commitment to keep an open line of communication.

Where possible you should make payments to creditors as quickly as possible – ideally on the day you talk to them. That said, it’s not always possible – so don’t put off starting this process just because your account balance is low – instead, be clear with dates and make sure you stick to them.

It might not feel like a joyous process to work your way through, but when you’re done you’ll get some respite from the letters and phone calls – and hopefully sleep a little more soundly knowing things are on their way to getting better financially.

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