I’ve written about budgeting and debt before but the festive period is a time when many people feel over stretched and struggle to balance their finances with their families expectations. The best advice is to only spend what you can afford but should you slip into the red here are my top tips for dealing with debt.
Create a budget
The first thing to do is document every single penny you spend and create a realistic budget. Use your bank statements from the last few months to find your average spend on things like food, transport, clothing, utilities etc. I use Martin Lewis’s budgeting spreadsheet which has clear categories you can assign your spending to. You can also add your incomings and let the spreadsheet tell you if you will be in positive or negative figures at the end of the month. This spreadsheet makes it easy to play around with numbers and decide how much you can afford to spend on each element. For example you could decided to reduce your spending on unnecessary treats like trips to the cinema in order to increase the amount you pay back each month on your loan or credit card. Once I’m happy with my budget I import the figures into an app called Goodbudget, the tech equivalent of the envelope system. This app is free to use and you can set your own budget categories and enter each transaction into the appropriate one. This makes it really easy to see exactly how much you have left to spend in each category and stops me overspending on things like food and nights out.
Pay off the card with the highest APR first
If you have several credit cards or loans try to pay off the one with the highest APR first. The higher the APR the more the credit will be costing you. If possible move your debts to a 0% deal. This will save you money that you can use to put towards the debt itself.
Talk to your creditors
If you can’t afford to meet repayments it’s worth contacting your creditors to make them aware of your situation. You may be able to negotiate a deal or agree on a new repayment plan.
Earn extra income
To pay off debt as quickly as possible consider how you could earn some extra income . Perhaps you have time for a part time job or maybe you have some items you don’t need and could sell. If I haven’t used something in over a year and it doesn’t hold any sentimental value I look it up on eBay to see what it’s worth before deciding if I would like to list it. Generally I list items twice and if they still haven’t sold I put them in a bag to take to the charity shop. I have had situations where something hasn’t sold for 99p the first time round and has gone for over £5 on it’s second listing. Every pound counts when it comes to paying off debt.
Get some help
If you’re still struggling, have debts of 5k or more and live in Scotland you can take the Scotland Trust Deed Debt Test which will indicate if you are eligible for a Trust Deed. This is a government backed contract between you and your lenders which allows you to write off a significant portion of your debts and only pay back what you can afford. This is one of three solutions, the other two being a Debt Arrangement Scheme and a Sequestration.