Getting into debt is something most, if not all of us, worry about happening. Ending up owning money to multiple sources can leave people feeling overwhelmed and concerned about the future, unsure as to how the best way to get out of the circle of debt.
According to The Money Charity, a staggering £1.562 trillion was estimated to be owed by people in the country by the end of October 2016, with the average individual in the UK owing around £8,000 each. So, what can you do to escape the debt trap? All The Lenders takes a look at some of the things you can do to avoid this end up happening to you.
Avoid paying back the minimum
One of the main factors that lead to people becoming involved in a circle of debt is to do with only making the minimum repayments necessary on certain cards. The Guardian has reported that store cards, in particular, have been shown to be a huge contributor to the problem of growing debt in the country, in part due to the fact that they tend to have extremely high-interest rates (anywhere between 25% and 30%). Other critics have said that another factor contributing to store card debt is that some are sold by untrained staff who do not fully explain to the customers the potential consequences of not paying the debt back in full. This is one of the reasons why you should make every attempt to pay the card balance back in full.
Making more than the minimum repayments also applies to credit cards. You may believe that setting up the account to pay back the minimum is a sensible idea as it means that you know you will always be able to afford to make the repayment, but the thing is, it could mean you end up paying back far more on the credit card (including the accumulated interest rate over time) by spreading out payments over too long a period of time when you could pay it off earlier.
Pay your bills promptly every month
Whenever possible, you should always make sure that you pay off your bills promptly each month, as the minute you start falling into arrears and start to incur late payment fees, it will make you much more susceptible to falling victim to a cycle of debt. This is because you may potentially find yourself end up with a higher interest rate and with steeper finance charges if you miss one too many payments.
If it comes down to simply forgetting and bad organisation, there are easy ways you can tackle this. Use a calendar on your phone or computer, entering payment dates with an alarm so that you get notified about when you should be making the next payment.
Waiting too long to get help
According to the debt charity StepChange, more than half of the people who contact them asking for help said they had waited at least a year before seeking advice for their debt-related problems. Unfortunately, in many cases, this meant asking for help at a point where the situation had already spiralled out of control.
In order to escape the cycle of debt, it is vital that you seek advice about the situation you are in sooner rather than later. If you feel that you are struggling with money, you could end up becoming more stressed and overwhelmed in the future, meaning that your debts start to build up and become completely unmanageable.
Contact one of the many free impartial organisation who can help to give you advice such as:
- Citizens Advice
- The Debt Advice Foundation
- National Debtline
Set up a budget
Whilst sitting down and looking at the state of your finances if you are already concerned about debt may not be something you may be keen on, it is well worth doing so you have a far clearer picture of both your ingoings and outgoings each month. You need to make sure that fully understand the extent of your financial issues. This means getting together all your latest bank statements, opening bills that you have been ignoring for weeks, as well as any other misplaced pieces of debt paperwork. From doing this, you will be able to create a budget that takes into consideration things such as:
- Essential living costs (such as things like food, travel expenses, clothing)
- Priority bills (things such as rent or mortgage payments, gas, council tax and electricity bills)
Having factored in these costs (which you should figure out before looking out how you can make repayments on outstanding debt), you will then be able to make a step forward to getting out of a cycle of debt.
Switch to 0%
If you owe money on credit cards that are particularly expensive, it may well be possible to transfer your existing debt straight onto a 0 per cent balance transfer card. For a stipulated period of time, there is an interest-free period, meaning that you can use this time to gradually pay back the existing debt. However, if you believe that you may well need a longer amount of time in order to repay the debt, it could be worth looking at opting for a long-term, low rate credit card.
Decide which debts to prioritise
Generally speaking, experts recommend to pay off any outstanding credit card debt first of all before starting to pay back others. The reasoning behind this is that these tend to have the highest interest rates, meaning you are paying back more money than you have taken out. If you don’t have credit card debt, rank your others in order of priority, perhaps by choosing the one with the lowest balance first.