The coronavirus lockdown has hit the economy hard and millions across the country will be feeling the effects.
Whether put on furlough, losing important freelance work or stuck unemployed with no job offers, many at the moment will find themselves in a difficult financial situation.
In many cases, this will have meant taking on debt.
But no matter how bad the circumstances there are always steps you can take to make things easier on yourself.
Read our ten-step guide to getting back into the black.
Worries: How to get out of debt and back into the black
About the ten steps
These ten steps are designed to help you get a grip on your finances and spend less money so that you can focus on paying debts back.
If you are really struggling with your debts and find that after step one you do have too much of your income going on paying credit card bills, loans or other debts that just aren’t being cleared, then you should seek professional advice.
1. Work it out
Sit down and work out exactly how much you owe and who you owe it to. Be honest or you will only store up more problems for the future.
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Millions of people are needlessly overpaying when their insurance automatically renews. But you don’t have to and it’s easier than you might think to fight back to beat the loyalty penalty.
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If your debt repayments excluding your mortgage take more than 20 per cent of your net monthly income you are entering a danger zone and must take steps to cut back.
Once you know how much you owe you can draw up a budget, including a schedule for repaying your debts.
Be realistic and work out what you can afford to repay and still stay within your budget.
3. Be disciplined
Don’t borrow any more money or take on any more debts until you have repaid what you already owe.
4. Watch your daily spending
Take a set amount of money out of the bank at the beginning of the week and give your card to a friend or family member for safe-keeping. That way you cannot spend more than you have in cash.
5. Organise your bills
Make sure you are paying all your utility bills by direct debit. It’s much easier to manage as you won’t have to worry about sending cheques on time and it is also cheaper as most providers offer discounts for direct debit payments.
This is probably the easiest way to cut your bills. You can do it today simply by calling your bank with the details of your energy suppliers. Or, alternatively, most energy bills enclose a form to fill in to set up a direct debit.
6. Switch your utility suppliers
Loyalty never pays when it comes to your household bills – therefore you could likely save hundreds of pounds each year on your gas, electricity, broadband, TV and phone bills by switching.
It is best to switch your energy and phone suppliers before you set up direct debits or you will end up having to change them again.
You can read more about fixing all of your household bills here.
Alternatively you can jump straight to searching for a cheaper energy deal with just your postcode using our tariff comparison tool above.
Could you cut your energy bills?
Millions of people could be needlessly overpaying for their energy as they fail to switch to providers who offer cheaper deal.
They may also be missing out on the opportunity to help the planet and fight climate change, by switching to green deals that offer electricity from renewable sources and more environmentally-friendly gas.
With our new partner, Compare the Market, you can compare energy tariffs and exclusive deals.
Why not find out if you could save hundreds of pounds a year on your energy or go green?
7. Switch to a cheaper credit card/loan
Interest rates on personal loans are still at record lows and while 0 per cent promotions on credit cards are not quite as generous as they once were, they still offer up to three years interest free.
Try different providers and you’ll therefore probably be able to find a credit card or loan with a better rate than you’re paying now – particularly for transferred balances on cards (watch out for balance transfer fees). Read our guide to the best balance transfer cards.
But remember that these special offer rates will rise considerably after an initial interest-free period – make a note in your diary to change deals again.
If you are likely to forget to switch, it may be best to go for a low rate that looks stable rather than 0 per cent for a limited period,
8. Cut up store cards
Store cards charge by far the highest rates for credit, so if you’re finding it hard to manage these debts throw away your cards now to avoid temptation.
You’ll pay well over the odds for most store cards with interest often as much as 30-40 per cent – it’s better to pay cash if you can.
For those items you can’t pay cash for, shop around for the best deals – the market is competitive, so there are some excellent interest free credit offers around. It is also worth taking a look on the internet as many products are offered there more cheaply.
AND ONE MORE FOR LUCK: REVIEW PROTECTION POLICIES
Finally, save money by switching your insurance company. You can often get cheaper car cover or mortgage protection, for example, by phoning around or looking through an online broker.
It is also worth checking that you’re not doubling up with some of your cover – for example, some home contents insurance policies cover your belongings while you are on holiday, so you wouldn’t need this in your travel insurance. Try our insurance policy finder.
9. Sort out your bank account
If you stuck with the same high street bank for years chances are you’re probably not getting the best deal.
Faster account switching has increased competition among the banks, meaning you could likely find an account with a cheaper overdraft, better perks and even freebies.
You may even be able to boost your balance by taking advantage of switching incentives or monthly rewards. If you are going to be using your current account to borrow an account with a generous interest-free buffer or fair fees will need to be your top priority.
Read our round-up of the top accounts for overdrafts here
If you have savings, shop around for an account with the best rate using our independent best-buy tables you may even want to consider an interest-paying current account as these often pay savings-beating rates.
10. Switch your mortgage
The mortgage is probably your biggest expense each month, so it’s important to ensure you have the best possible deal.
Speak to an independent financial adviser or a broker about your remortgaging options and if it looks like you could save money make the switch.
Remember to take into account any transfer charges from your current provider and any legal fees for switching.
Weigh up the all-in cost of remortgaging before you decide if it’s worthwhile, you may still find that the savings you’ll make with a new mortgage will more than cover any transfer expenses. Try our mortgage finder.
- If you’ve followed all these steps and are still struggling to keep on top of your debt then you might need to get some expert help. StepChange Debt Charity can help you put together a personal budget and provide free debt advice about how to get back in control of your finances.
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