Whether it was spending £719 celebrating Christmas, a series of unexpected bills or overspending, many us can end up with debt that we're not sure how to get rid of. So, here are our practical steps to get debt-free in 2020.
Step one: Act now
Now is the perfect time to bite the bullet and get a grip on your finances.
Debt tends to build up because people underestimate how much they are spending. With this in mind, make a note of your monthly income including any benefits, followed by all your regular outgoings, including bills, transport costs, rent or mortgage, plus your typical weekly grocery shop. Now add all the small, ad hoc purchases, coffees, treats and snacks.
If you’re brutally honest, you’ll soon build up a picture of where all the money goes, which puts you a little closer to getting back on your feet.
Step two: Use calculators
The next step is to ensure you know exactly where you want your money to be spent in the future. To do this you’ll need to keep a tally of all your spending, which is made all the easier thanks to online budget planners and mobile apps, such as Moneydashboard.
Step three: Start budgeting
Once you’ve pinpointed what you spend each month you can begin looking for ways to cut back. This involves more than just shopping at a cheaper supermarket, buying own-brand products or avoiding the shops. Moving to a new energy provider or change your mobile phone provider might prove especially fruitful. Price comparison or switching sites such as Migrate (energy bills) or Broadband Genie (internet) can help you find cheaper alternatives.
Also, ask yourself whether you really need to spend so much each month on satellite or gym subscriptions when a Freeview box and a pair of trainers are so much cheaper. And if you’ve just signed a new contract remember there will be a cooling off period during which you can cancel without incurring a fee.
Step four: Break bad habits
If something is convenient the chances are it’s also relatively expensive. This can be anything from takeaways to taxis. By steering clear of these little luxuries you could save a pretty penny.
Walking instead of taking the bus or driving is a good move, while taking your own coffee and lunch to work will also help you to save money. Spending £2.50 a day on coffee and £4.50 on lunch five times a week will cost you £40 a month, and preparing your own probably takes less time than you’d spend in queues.
Step five: Play your cards right
Lifestyle changes and cutting back on spending will only take you so far. If you really want to boost your finances, you’ll need to take a cold hard look at your debts, starting with credit cards.
Many people stick with the same credit cards for a long time, meaning any good deals they initially got have long since expired. This is why it’s important to see if it’s possible to switch to a card that is cheaper to use.
Ideally, this would be a 0% balance transfer card. Good ones will give you more than two years of 0% interest, which will help you get debt-free quicker. However, if you can’t get a balance transfer card, concentrate on paying off your highest interest card first, while making minimum repayments on the others.
Step six: Consider debt consolidation
If you have unsecured loan, store or credit card debts that are difficult to manage, you might like to consider a whether you could save money with a debt consolidation loan. With this option, some or all of your debts are lumped together so you can start repaying them via a single monthly repayment.
Debt consolidation loans offer a way to simplify potentially messy debts, which is a big plus, but they require discipline. Anyone who takes one out needs to cut up all their credit cards, avoid taking out fresh loans and be certain they can afford the repayments.
Step seven: Get expert help
Managing personal finances is a full-time job, and far from an easy one at that. At some time or other most of us will get in over our heads, and it’s important not to bury your head in the sands if this happens, or if you just need some help on the best course of action. Instead, contact independent debt experts: