How to cope with and manage debt

BY READERS DIGEST

1st Jan 2015 Managing your Money

Here, money expert Marianne Curphey, looks at 8 ways to get out of debt, and manage your existing debt so that you can stay in the black and enjoy life.

The impact of debt

The worry of debt can affect your life and limit the life choices you make, such as staying in a "safe" job, not moving house, and not enjoying a good quality of life. It can also cause arguments between you and your partner or family members. Learning how to manage debt is an important life skill, but unfortunately not one many of us were taught at school.

Yet being able to handle credit well could mean that you qualify for a cheaper mortgage or loan, better credit card deal, and enable you to get competitive broadband or phone contracts.

Eight solutions to fight debt

1. Work out how much you owe

This can be a scary prospect if you have a lot of debt spread amongst loans, credit cards and other forms of credit. However, it is the first step to taking control of your money.

Make a list of your debts, how much you are paying off, and what the interest rate is. Then you can begin to prioritise them.

2. Prioritise your debts

Work out which are essential – utilities, council tax, rent or mortgage all need to be paid. You may be able to negotiate with loan or card companies if you are struggling to keep up with repayments, but try to contact them before you fall into arrears.

3. Pick the debt with the highest interest rate

This is the one that is costing you the most money and paying off some or all of it will potentially make the most difference to your finances.

Alternatively, pick a small debt that you can clear relatively easily. This will give you a morale boost and help you get into the habit of thinking more positively about your finances.

4. Make a note of when payments are due

Even if you can’t clear your credit card debts immediately, it’s important to make sure you don’t miss paying the minimum monthly payment as this will count against you on your credit rating. A poor rating will mean that any future credit you try to take out will be more expensive.

Although paying the minimum each month on your credit card won’t help clear your debts, it will ensure that your situation doesn’t get worse.

5. Recognise when you might need help

If you are using credit cards to pay for essentials like food, or are juggling debts and paying off one credit card with another, then you can get help from a debt charity such as National Debtline or StepChange. Their specially trained debt counsellors will help you work out a budget and a repayment plan and may negotiate with your creditors on your behalf.

6. Understand your own personal relationship with money

Do you spend when you feel sad, stressed or lonely? These can be triggers for impulse spending. If you know that this can happen to you, think about substitutes such as going for a walk in the park or meeting up with friends which will lift your mood for free. Don’t use spending on your credit card to give you a short-term fix.

Read more: Break the habit of debt

7. Get into the habit of waiting

It’s easy to put big purchases on the credit card without really having a plan about how you are going to pay that money off.

Debt becomes a problem when you are in a cycle of accumulating it, repaying it, and then accumulating more. Once you have cleared your debts don’t be tempted to load up your credit card again. Think about building up some savings so that you have an emergency fund for essential spending in the future.

8. Don’t feel too ashamed to go for help

Debt counsellors are used to helping people with money issues and they won’t judge you. Often people get into debt because of life events such as sudden illness, divorce, redundancy, loss of overtime, childbirth or disability. If you are starting to find it difficult to manage your borrowing commitments then it is time to seek help.