The Guide to Getting Out of Debt

Getting out of debt can be tough.

It can affect your mood, your relationships, your quality of life and sometimes feel as though the situation is only getting worse.

I’m going to give you some actionable tips to help clear your debt. But first I’m going to ask you to do something a little out of the box:

Treat this process as a your own personal challenge, something you are passionate about achieving and make real conscious efforts to enjoy the journey.

Easier said than done I know – debt is serious. But listen…

If you associate negativity with clearing your debt then you will always look for ways to avoid the process – which will only make things worse.

I started Budget Breakaway as the creative outlet to document my journey of getting out of debt – my way to keep laser-focused on clearing my debt every day.

Take a look at my old side-hustle round ups. The time where I made the most impact against clearing my debt was when I became inspired and creative in my approach to get out of the red. And honestly, I had a great time doing it!

Your situation will of course differ. But the principles are the same. If you can find a way to enjoy this process you will increase your chances of getting free from the chains of debt.

This guide is broken down as follows:

• Part One: Create a Strategy for Clearing Your Debt
• Part Two: Boost Your Income
• Part Three: Cut Back Your Costs

1. Work Out How Much You Owe

Break down every due debt that you owe: utility bills, late credit card bills, overdue mortgage payments, loans and even money borrowed from family members.

List the amount owed, to whom and most importantly the interest rate being charged by each debt. Ensure this information is as up-to-date as possible.

Now add this all together to get a total figure for the debt you owe.

2. Prioritise Your Debts

Next, order your debts from the highest interest rate to the lowest.

This is the order which you should pay each of your debts off.

This technique is known as the avalanche method of debt reduction  – providing you have the motivation, it is the most efficient as you will end up paying less interest to your banks and lenders.

3. Review Your Bank Accounts

Some current accounts reward their customers whilst others do not. Review what your current account is doing for you. Here are some accounts which may be worth switching to:

• The Halifax Reward  account offers new customers a £100 switching bonus along with a £5 per month reward when you use direct debits.
• The Santander 123 account offers cashback on household bills and up to 3% interest on the balance in your account.

4. Check Your Eligibility for Benefits

There are a huge range of benefits available to different types of people and families – use the Money Saving Expert benefits checker to find out if you are eligible:

5. Use Your Savings to Repay Your Debt

It can be disheartening to let your savings go but it often makes good financial sense to put your savings towards your debt repayments.

This is because the interest you are charged on your debt is often much higher than the interest you earn through savings.

6. Stop Borrowing

Borrowing money whilst you are in debt is a sure way for you to get pulled further into trouble.

Remember, using a credit card is another form of borrowing money. If you are using a credit card be sure to pay it off in full before you incur any charges.

7. Set Your Initial Budget

Take a look at your bank statements from the last three months and note down your average incoming and outgoings.

We’ll look at ways to improve these later but first, you should be able to pinpoint a single monthly figure that you could comfortably pay against your debt each month – we’ll refer to this as your minimum monthly repayment.

You can use this figure to calculate how long it would take to pay off a given debt using this debt repayment calculator.

8. Consider Getting Help

If you have over £5000 in unsecured debt, there may be options available to you to freeze the interest on your debt. Companies like Trust Deed Scotland can assist here and also offer debt consolidation services.

Now you have a strategy in place it’s time to ramp up your income to allow you to pay even more debt off at a faster pace. Here are some quick and easily accessible routes to generating more income:

1. Sell Things that You Do Not Need

One of the quickest ways to generate cash is to sell your possessions. There are a huge number of outlets where you can sell your items:

• Boot Sales are great for selling clothes, furniture and kitchenware
• Ebay and Amazon are good outlets for selling technology goods and books
• Consider specialist sites such as Autotrader for selling cars or Money Magpie for selling phones, CDs etc

2. Ask for Overtime or More Hours from Your Employer

This will differ depending on where you work but in many organisations there is often opportunities for additional paid work. Even if there isn’t opportunities in your team/department, your employer may be aware of other areas of the business where you can help out.

3. Ask for a Raise

Getting a raise is a great way to boost your income, however, you should treat this tip very carefully. When asking for a raise here’s what to consider:

• Timing is everything: be sure to schedule time with your employer or wait until your annual review – don’t take your boss by surprise!
• You need to have earned it: If your performance at work has consistently been down then asking for a raise may not be the best route for you at this time

3. Change Jobs

If your role/financial progression at work is becoming stagnant and you feel you could achieve more elsewhere then perhaps it’s time to consider another job.

Take a look at some recruitment sites for similar roles in your area to see if this could be a wise move.

4. Freelance or get a Second Job

A great way to put some more cash towards your debt repayments is to get a second job or to do some freelancing in your part-time. Depending on your area of expertise, Elance can be a great place to sell your services in writing, design, data entry, programming and more.

You’ve boosted your income, now it’s time to cut down on the costs. Here are some tips on making savings on your regular expenses. Remember, any savings you make should go straight towards your debt repayments.

1. Cut Down Your Mobile Bill

Cutting down your mobile phone bill can be a quick and easy win depending on your contract and network. Here’s how I saved £372 on my mobile contract.

2. Take A Break from Credit Card Debt

If you’re consistently being hit with credit card charges then it may be worth moving your existing credit card debt onto a 0% interest balance transfer card. This will allow you to pay down these debts without needing to worry about interest charges for a few months. Ensure you check to see if there are any fees to do this!

3. Cut Back on Commuting Costs

There are a number of ways to cut down your commuting costs. If you work close to home and drive in, consider walking or biking to work. If you work further afield, consider driving more economically or even car sharing with a colleague.

4. Cut Down Your Utility Bills

Switching energy providers can save you hundreds of pounds each year. To see if you can save money on your gas, water or electric bills try out the ‘Cheap Energy Club’ on Money Saving Expert.

Also ensure your utility bills are paid on time by switching each of these to Direct Debit – some companies also offer discounts to customers who do this!

A Final Tip…

One of the biggest causes of debt is willpower; controlling your spending can be tough especially as you have to avoid spending each and every day to ensure you have some leftover at the end of the month.

With this in mind you should make the biggest payments towards your debt at the start of the month (just after payday) – this way you won’t have to rely on willpower to ensure you pay your debts.

Just be sure to leave enough in your account for food, bills and any unexpected costs such as car maintenance.

I hope you’ve found this guide to clearing your debt helpful. If you have any further tips or advice, please let me know in the comments!