It can be tempting to live in denial when it comes to debt. As long as you are making the minimum monthly repayments on your credit cards and sticking to the schedule on your loans, why worry about the total sum that you owe?
But while the responsible management of debt is healthy, irresponsible behaviour can mean that debt can eventually overwhelm you and reduce the chances of financial security in later life. It is now common for Britons to owe more than £10,000 in unsecured borrowing which excludes mortgages and other loans secured on property.
Having such a large amount of debt can often lead to exactly the kind of behaviour which will pile misery on top of misery: those in this situation often prefer to pretend it is not there and just carry on with reckless spending.
But dealing with your debts – even when your income is low and the amount that you owe seems overwhelming – is perhaps more straightforward than you think. Here are some steps you can take to start to reduce that frightening amount that you owe and to look forward to a more secure future:
Make a dent in your debt immediately
Your income may be so low that you don’t have enough disposable money to divert into making a difference in your debt. But that shouldn’t stop you doing something right now about it. Look around you – how much of your ‘stuff’ do you actually need? Why not sell some of it – perhaps a second television or a laptop? If you’re running two cars could you go down to one?
When you sell one or more things, use that money to attack one of your debts. This should preferably the one with the lowest amount outstanding. If you have enough, pay off this balance completely. This will feel incredibly empowering and liberating and free up some money with which to attack your other debts each month.
Cut up your credit cards
When you are depressed about debt, the easiest thing in the world is to try to cheer yourself up by spending money that you don’t have. You need to learn how to live within your means if you are going to stand a chance and it is extremely reckless to continue to plug the gap between your spending and your income with credit cards. Instead, you should try to use cash or a debit card for every purchase that you make for at least the next 12 months. That will remove any temptation to live beyond your means and focus your mind on the task ahead. It will make you aware that every choice you make will have a direct effect upon your ability to get out of debt.
Set some realistic goals
It is no good setting some targets which are ridiculously unachievable. Be realistic. One of the reasons that you have got into the position that you’re currently in is because the prospect of being free of your debts seems completely out of reach. You shouldn’t be aiming to be free of all debts – everybody, even the most well off, carry some debt for most of their lives. Instead, you should be focussing on paying off your smaller debts one by one in a methodical and disciplined fashion. That starts with the smallest debt of all – focus on paying that one off and maintain your minimum payments on everything else.
Set a household budget
This is absolutely critical when it comes to long-term sustainability. Learning to budget is, sadly, a skill which seems to have fallen out of favour. But if you set a budget and then track all your income and expenditure against it, it will soon become clear which areas you cut back on to boost the amount of money you have for tackling debt. Learn to live more frugally – you don’t need to buy expensive coffees from the café every day, you can make you own lunches to take to work and you can walk or cycle instead of driving sometimes.
Use the snowball
When you’ve cleared your first debt, don’t spend that money. Instead, use it to attack the next one. Each debt that you clear will increase the amount you have to pay off the next one and reduce the amount of time you spend paying interest. It’s called the debt snowball – learn to use it.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley