How To Get Out Of Debt: Part 1

Almost every adult in Britain has some form of debt to repay. For most people, and other forms of credit provide an opportunity to get the money to buy a house, a car, or consumer items that they can repay comfortably over a period of time. However, for the minority these debts can become a problem when they fail to keep up with repayments. In this two-part series we advise on how you can get out of debt.

Possibly the most difficult part of getting out of debt is taking that first step by facing up to your debt problems. It is easy to brush those mounting bills under the carpet and simply ignore the problem. However, this is the worst mistake you can make, the earlier you take action to clear your debts the easier it will be.

Once you make the decision to deal with your debt problem it is time to put a plan of action in place. Firstly, you need to identify and prioritise your debts.

Make a list of all your debts with all the pertinent details, such as who you owe, how much you owe, the cost of monthly repayments etc. Then prioritise these debts. Priority debts usually include things like mortgage/rent payments, utilities, car payments, or debts where legal action has been taken or is pending.

These are all essential payments and need to be taken care of. Non priority debts, or secondary debts, such as credit card bills or hire purchase on consumer items can be dealt with a little later. If you have fallen into arrears on any of your priority debts you should contact the lender immediately, preferably by letter.

For the most part, creditors will be appreciative of the communication even if it is to say that you are having trouble keeping up with repayments. The earlier you make contact, the more flexible the lender is likely to be. You should ask the lender to defer payments, reduce payments over a longer term or even waive interest costs to help you get back on your feet.

Once you have ensured that your primary debts are being serviced you can move onto the next stage of planning.

Preparing a budget

Preparing a good budget is perhaps the most important part of getting out of debt and staying in the black in the future. In short, a budget sets out how much money you get and how you are going to spend it.

You will find countless budget sheets available on the internet and at debt management advice centres that will help you make your calculations. Begin by assessing your monthly income, then list all of your expenditure and calculate how much you can spend on debt repayments.

In addition, you should look at ways to save money. Cut down a little on luxury items, shop at the supermarket instead of the grocery store, or try to reduce your mortgage repayments. Basically, save money where you can so you can clear your debts as quickly and cheaply as possible.

In the second part of this article we will look at the next stages of getting out of debt. This will involve talking to your creditors and reaching a manageable repayment plan, and making sure you keep up with repayments until the debts are cleared.

Go to page 2 of this article