12 Steps to get debt-free - Debt - Guides - Moneyfacts

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12 Steps to get debt-free

12 Steps to get debt-free

Category: Debt

Updated: 15/03/2016
First Published: 20/12/2013

Taking action with your finances and reviewing existing credit agreements can help you get debt-free, before getting trapped in a vicious circle.

Maybe you had to resort to credit cards, savings accounts, catalogues or possibly an overdraft to finance regular outgoings lately? Now's the time to do something about it!

Here's how you can start...

1. Take stock of your debts

  • Confirm the balances of all your bank accounts, credit cards, loans and other debts
  • Find out the rate of interest you're being charged on each

2. Put your budget under the microscope

Fully itemise what you spend each month. A great way to do this is on a spreadsheet, or by using a budgeting tool.

3. Review what you spend – where can you make savings?

Once you've drawn up your budget, take a detailed look at your spending.

  • Are you getting the best value for your:
  • Do you use that gym membership or streaming subscription?
  • Could you have a packed lunch rather then a shop-brought sandwich everyday?
  • Do you go out to restaurants regularly?
  • Do you go out every Friday night?

If debts are really on top of you, then the problem isn't going to go away simply by trimming around the edges of your spending – you need to be brutal and look at your lifestyle. We're not saying that you should stop going out or eating at restaurants altogether, but going out once instead of twice a month can still free up a reasonable chunk of money.

There are other areas you can look at, too. If you've got an expensive car and the finance for it is crippling you, can you sell it and buy a less expensive vehicle, perhaps by taking out a smaller loan? Or perhaps you could save on petrol and use the car less regularly, by doing a car share or cycling to work instead?

The more you can save, the more you can put towards repaying your debt.

4. Remove the temptation to get into more debt

  • Cut up any credit cards and store cards you're trying to pay off so you're not tempted to spend on them.
  • Close any credit card accounts that you don't use or have a balance on.
  • Tell your credit card providers to reduce your credit limits (you have the right to ask them to do this).
  • Bin any shopping catalogues you have and try to stop yourself from going to their online counterparts (although be sure to keep any paperwork regarding the debt you have outstanding!).

5. Prioritise repaying your most expensive debts first

  • Prioritise repaying your debts in order of the interest rates they charge, and aim to repay as much per month as you can.
  • Store cards tend to be much more expensive than credit cards and overdrafts, so try to boost your repayments to this kind of debt. Or, if you've been in such dire straits that you've had to resort to a payday loan this will be costing you a massive amount of interest, so paying this off is your number one priority.
  • Although you're prioritising debt, make sure you continue to make at least the minimum payments on all your other credit cards, as missing a month could result in charges and a black mark on your credit score.
  • Suspend any savings contributions you are making – it may seem counter-intuitive, but you won't make as much interest on your savings as you'll save by repaying your debts. So, while it's sensible to have a bit squirreled away for an emergency, focus on getting rid of debts first and then you can return to your savings pot with vigour.

6. Repay your debts more efficiently

You may be able to save money just by shifting balances from your more expensive credit cards to your least expensive card. This also goes for any store cards, which tend to be more expensive than the standard interest rates charged by credit card providers.

Ideally, be on the lookout for cards that offer a 0% balance transfer deal – if you're really struggling with debts you may find it difficult to be accepted, but you might get an offer from one of your current providers, so pay attention to any marketing you receive from them.

7. Automate your debt repayments

Eliminate the risk of forgetting your debt repayments by automating them.

A standing order will let you pay a set amount on a set date of the month, and most credit card providers will allow you to pay in this way.

You should find instructions on whether your card provider accepts payment by standing order as well as how to set this up on the reverse of your credit card statement. You'll want to set the standing order so it covers at least the minimum payment, and ideally, you'll want to pay off even more.

8. Move debt to a 0% balance transfer credit card (if you're disciplined)

Applying for a long 0% balance transfer credit card can be a good idea as it can give you the opportunity to pay off all, or a large chunk, of your debt without paying interest on it for an initial period. You will have to pay a balance transfer fee to move debt across (typically up to 3.0% of the amount you transfer), but this is still cheaper than having debt charged upwards of 16% per year!

Watch out though, as another credit card means an extra credit limit – more money that you could borrow if you're not disciplined. So close any cards you don't need to make sure you don't rack up further debt.

9. Think about a personal loan (if you're worried about taking out another credit card)

A personal loan can work out more expensive than a 0% interest credit card, but has the big advantage of a set end date and a very real light at the end of your debt tunnel.

10. Stay motivated to get debt-free

Although it's never exciting repaying debt, getting out of it will be, so make sure to keep yourself motivated to help you reach your goal.

Setting yourself regular targets and rewards could be a great way to do just that. When you repay your first £1,000 of debt, for example, you could reward yourself with a well-earned restaurant visit or some other kind of treat.

Try not to get stressed about your debt, either. It's only money after all – the most important thing is your health. Getting outdoors regularly for a walk, jog or just cycling with the kids can really help you think your problems through and put perspective on things. It may also help to talk about matters with close friends and family.

11. If you think you're in over you're head…

There's no debt problem that can't be solved, even if you're apprehensive about the measures you may need to take. But with debt you can be sure that the longer you leave a problem unaddressed, the worse it will get.

12. Act early

Talk to a charitable organisation such as those listed below and you can be sure of honest, supportive and balanced advice.

What Next?

Compare 0% balance transfer credit cards
Compare loan repayments and interest with our easy-to-use loan calculator
Dealing with debt

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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