Maxed out your overdraft? How to pay off debt fast

Harvey Jones

Living in debt can be a nightmare. Interest on mortgages, credit cards, and loans can keep rolling up until it seems impossible to pay. This five-step plan could help you get back on track.

People fall into debt for all sorts of reasons, including bad shopping habits, gambling, divorce, ill-health or unemployment. StepChange Debt Charity receives a new call for help every 48 seconds, as debt problems hit record highs, especially among the young. Whatever the cause, don't stick your head in the sand.

 

1. Stop spending

clear debt fast

Everyone likes the odd splurge but like doing anything to excess, there's a price to pay when you get home.

If you are running into the red, it is time to cut back. Start by drawing up a monthly budget to identify non-essential spending. Then hit the comparison sites to see if you can get a better deal on your energy bills, motor and home insurance, broadband and mobile, and so on.

Take sandwiches to work. Sell things on eBay. Cut back wherever you can, and look for ways to generate extra cash too.

 

2. Prioritise your repayments

how to repay
Photo by Two Paddles Axe and Leatherwork

If you are struggling to pay the bills, there are some you cannot afford to ignore. Prioritise your mortgage, rent, council tax, and energy bills, to keep a roof over your head and maintain essential utilities. If you need your car for work, ensure you meet all your financial obligations. Paying court fines is another must.

These are the priorities but the truth is you have to cover all your spending or risk being made bankrupt.

 

3. Snowball your debts

how to clear your debt

When paying off debts, the trick is to start with the ones charging most interest. If you owe money on a store card, you could be charged an APR of up to 30%. Some credit repair cards charge 50% or more. 

Overpay the costliest while maintaining minimum monthly repayments on the others. When you've cleared that, move onto the next, then the next, whether an overdraft, credit card or personal loan, until they’re back under control.

 

4. Consolidate

consolidate your debts

Another option is to consolidate your debts onto a personal loan or 0% balance transfer credit card. The very best charge no interest for an introductory period lasting more than two years, giving you time to get in control of your finances.

You need a clean credit rating but if you qualify this could save you a small fortune in interest. Aim to clear the debt in full before the introductory 0% rate expires, when the APR will typically shoot up to around 20%.

Some overdrafts are more expensive than others, so, shop around for a better current account if you can. Alternatively, consolidate all your debts onto a low-cost personal loan.

 

5. Take advice

how to pay off your debts

If still struggling, seek specialist advice but avoid private companies that charge for setting up debt management plans, which will only add to your outgoings.

You can get support free of charge by contacting your local Citizens Advice, National Debtline on 0808 808 4000 or StepChange Debt Charity on 0800 138 1111.

Finally, when you've got your debts down, start building up your savings so you never find yourself in this position again.