Dragging debt over into a new year can be dispiriting, especially if you have recently added to that debt with an over-indulgent Christmas. However, a new year can equal a fresh start, and what better way to give yourself a boost than drawing up a plan to tackle your debt head-on?
Burying your head in the sand over how much you owe is a sure-fire way to make things worse. So, gather up those statements and bills, open them up, and then make a detailed list of what you owe and where. Once you can take account of the money you owe, you can make an effective plan to pay it all off.
Now that you are familiar with your credit card bills and bank statements, it's time to work out which debts are most urgent. Things like the mortgage should always be prioritised as falling behind on these payments could cost you your home, so rank this and other high-priority debts at the top and then work your way down.
The next stage is all about starting to plan how you will cover your debt. Dig out your bank statements and familiarise yourself with your spending. It may help to print everything out and then highlight unnecessary spending in red. This will give you a clear visual overview of where your money is going.
Unnecessary spending could include meals out, entertainment or take-away coffees. While no-one likes to deny themselves life's little treats, if you're serious about becoming debt-free, then this spending will have to diminish. Try replacing these things with good home-cooked meals and nights in with friends. It's also a good idea to keep an eye out for free events or to gather up any vouchers or discounts.
Once you've identified where you are losing money on unnecessary purchases, it's time to review your other spending. Chances are that you spend a lot of cash on utilities, insurance and food, so it's a good idea to make sure you are getting the most from your money. Use our comparison tool to make sure you are getting the best deal for your gas and electricity and get insurance quotes when it is time to renew a policy – you may be surprised by how much you can save.
Now that you have a good idea of the size of your debt and where you can start to cut back on spending in order to pay it off, it's time to make a strict budget. Make sure you can meet the payments of your prioritised debts and that you are paying more than the minimum payments on your credit cards – failing to do this will mean that your debt will only get bigger.
If you have credit card debt, you may also like to think about transferring the balance to a 0% interest balance transfer credit card. You won't gain any extra debt during the interest-free period, and you can simply divide the debt by the number of interest-free months to work out how much your monthly repayments need to be in order to clear it. However, if you choose this route, cut up your other cards and don't be tempted to spend anymore, otherwise the advantages of transferring your balance will be lost.
If you're struggling to make a budget, or you really can't make the payments, don't be afraid to speak to your bank, credit card supplier or energy provider. They can often help you to draw up an affordable payment plan. You can also get help from charities, Government organisations and consumer bodies, such as Citizen's Advice, the Debt Advisory Centre or Stepchange, so you don't have to do it alone.
Compare credit cards
Compare insurance quotes
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
Moneyfacts.co.uk will, like most other websites, place cookies onto your computer’s
hard drive. This includes tracking cookies.