When spending money on something you want or need, it can be easy to live in the moment. This is especially easy when doing so with available credit. However, as quick as it is to spend, the quicker falling into debt can occur that may become overwhelming if not actioned. Avoiding this scenario from happening is always recommended, but what can you do to overcome the debt you already have accumulated? Here are some top financial tips to help navigate your way towards a debt-free future.
Identify & Prioritise debt
Having a clear view of your debt situation should be one of the first things to consider before tackling individual debts. If it is just one main creditor you have, this will be simple to focus on, but if like many you have multiple lenders you owe money to, prioritising your debts is best. There are a few ways to do this as some may want to focus on the largest debt first and work their way down, whilst others will go the opposite way and clear smaller debts first. There is no right or wrong way to do so, but an advisable route to take is to focus on which debts have the highest interest first. If you have payday loans or credit cards, for example, they are an ideal choice for short term borrowing or covering an emergency expense. If not paid off on time, they can accrue interest in the long term. Assess which of your debts you pay the most interest on and look to reduce these first. This way, you can reduce your overall debt quicker with less interest to pay.
Assess Your Income & Expenditure & Budget
Whilst identifying what debts you are going to pay first is great, having the money to this is another matter. If one of the reasons your debt has accrued because you have little to no money left each month to reduce it, it’s time to assess your income and your monthly outgoings. By doing so, you will be able to identify how much disposable income you have and how much is spent on non-essential items. Your essential bills should always be your priority, such as your mortgage payment or rent, utility bills, and existing debt repayments. If from looking at your bank statements you can see regular spending on non-essential items such as clothing, takeaway food, and drink etc., this is where you can start to budget. Increasing your disposable income is key as you will then be able to pay more towards your debts.
Speak to Your Creditors
More often than not, those in debt may choose to ignore their creditors if they cannot repay a monthly repayment. However, by speaking to them, you can start to seek help with your debts. Being honest to your creditors about your situation and your affordability may work in your favour, as many lenders will look to help by arranging a repayment plan for any arrears you may have accrued. If the issue is that you are maintaining loan repayments but at a detriment to other essential bills, the lender may be able to recommend a different product to reduce your outgoings. Whilst this may not be available with all creditors, speaking to them will help start the process of reducing them.
Climbing out of debt isn’t easy once you’ve created it, so the goal once debt-free, or in a better position to repay them, is to avoid the situation from happening again. Keep an eye on your bank balance and budget your spending to help keep on track. It can be easy to fall into the cycle of debt again, but if you have better control of your finances, the reliance on further borrowing will reduce.