Some simple ways to beat Debt
The simplest way to beat debt is to listen to your nana and not get into debt in the first place. Remember when people used to save up to get the things they wanted? Yes, the good old days when we couldn’t whip out a credit card and charge some new purchase which we would probably rarely use in any event. But since most of us are already in debt we first need to get out of it before we can start thinking of saving.
The first thing you have to establish is exactly how much you owe. No matter how much you hate those bills you have to sit down, go through them and find out exactly how much more you have left before you finish paying off your debt. The best option would be creating an excel sheet where you add the outstanding balance, the interest rate and your monthly payment.
Once you have added all your debts now you need to decide which one to focus on to pay off first. Many advocate paying off the highest interest one off first while others feel that you should start with the smallest to highest. In either case you are going to use a system known as the debt snowball which means that once you have paid off one debt, the money going to that payment each month will be added to the next debt so you can pay that off quicker and so on and so forth.
To pay off that first debt faster you are going to have to make some changes which means drawing up a budget to see where all your money is going and if you can save anywhere. Depending on how quickly you want to pay off your debt you can cut out most things except for the essentials. No, chips and a pint every night are not essentials, we guarantee you will live without them for a while.
Every penny you save will go towards making extra payments on your first debt so you can pay it off as soon as possible. Once you have finished with the first one you will take the money you were paying on it every month and add it to the payments of the second debt until that one is finished and then move on to the next. This may seem a daunting task but you will find that paying off your debts and being well on your way to a stress free life can be quite an addicting feeling.
5 Money Saving Tips to Avoid Debt
Whether you are already in debt or are trying to avoid getting on the hamster wheel there are some tips that can help you save money. The first thing you really need to do to help you reduce your spending is to determine whether or not you are out of control. Some clear signals are that you have so much stuff that you don’t know what to do with it and you still have jeans you haven’t worn since you bought because you just have too many clothes.
1. Before you buy that new gadget, shirt or new book step back and ask yourself if you really need it. Preferably give yourself 24 hours to think about it and if you still find you really want the item and it will be useful then make the purchase. But more often than not you will find that it was a thing of the moment spurred by great marketing campaigns and once you get home it will slip your mind completely.
2. Saving on food shopping does not have to mean eating stale bread with a side of water for the rest of your life but it does mean cutting down on all the food you buy, half of which you throw out anyway. Herein lies the problem, we buy so much food as if its going out of style and then we end up throwing it away because it has a funny smell. If you work out how much money you can save in a year by just not buying and throwing out so much food you may be shocked.
3. Make your own coffee at home. It really isn’t that hard and you are guaranteed that your cup of java is not going to cost you the equivalent of a small car in a year, unlike picking up your coffee from the local Starbucks every morning before you dash off to work. You can also try taking your lunch from home rather than ordering takeout or going to the pub and buy a second car instead.
4. Switch lights off in rooms after you are finished, turn off electrical equipment you aren’t using and don’t leave the water running for the sake of it. These small changes will cut your electric and water bills down significantly. Why should you pay for something that you aren’t even using?
5. Socializing is great and we all need to do it every now and again but that doesn’t mean eating out every night followed by drinks and, if you are in a generous mood, picking up the tab. You are just flushing money down the toilet and you will end up with a huge debt looming over your head and you won’t have anything to show for it. No one says you shouldn’t see your friends but have you ever considered cooking dinner and inviting them over to your place? It is not as difficult as it may sound and you will probably have more fun as well.
A few changes in your life can have you saving thousands every year which will help you pay off your debt or avoid it all together.
IVA or Debt Management?
Deciding between an IVA or debt management plan can be a daunting task and there is no right or wrong answer. However, both can be a good option in different situations therefore knowing the pros and cons of each will help you make a more informed decision.
The first criteria which will make your choice extremely easy is that you can apply for an Individual Voluntary Agreement only if you have a minimum of £15,000 in debt to at least 3 creditors while a Debt Management Plan limits you to a minimum £8,000 in debt to 2 creditors.
One of the most important differences between the two, especially if you qualify for both, is that with an IVA you will be debt free in five years, regardless of how much you have paid off, whereas with a debt management plan you can end up paying it off for the rest of your life if the monthly repayments are small. Also, the fact that an IVA is a legally binding agreement means that your creditors cannot back out of it any time they feel like it, while a debt management plan carries little judicial weight. However, this legal character of an IVA means that if you cannot keep up with payments then you will most likely end up being made bankrupt. There is a very fine line between the good and the bad in this case.
On the other hand with an IVA you will be making monthly payments that can vary according to your earnings, in other words the more you earn the more you will be paying, whereas with a debt management plan you pay only the amount you want and feel can afford which is then fixed for the duration. One big problem with a debt management plan is that most of the companies who help you organise it require that you have an income and own your home which will be used as surety against your debts, while an IVA will protect large assets such as your residence.
Depending on your situation both plans can be a good choice. However, if you are in deep debt then maybe an IVA is your best option so that you can see the light at the end of the five year tunnel.
How to Get Help with Debt
If you are sinking further and further into debt and can’t seem to find a way out or your income is just too small to cover your monthly payments then you need some help with your debt. Luckily, there are many resources available so you can get help with your debt and many of them are free.
Advice over the Phone
The National Debtline offers advice which is free and confidential over the phone as well as multiple publications on their website. Note that they have different services for England, Scotland and Wales because the laws regarding debt vary. You can visit their website at nationaldebtline.co.uk.
The Consumer Counselling Service (CCCS) provides free and independent advice to help people get out of debt. They have a telephone and an on line service, as well as providing a wide range of tools and courses.
Payplan also offers free advice to debtors but they also help with money management advice and tools. They also provide free debt management plans and IVAs with no upfront fees.
Debt Advice in Person
If you are looking for a more hands approach and would like to meed with your counsellor then the Citizens Advice Bureau is your best option. The provide information and advice on a whole host of issues from legal to financial and many more. There are CAB offices all over the country and you can find them with an on line search or in the local phone book.
AdviceUK is made up of a network of independent advice centres which can help with debt advice. Another option is Shelter which will also provide guidance in obtaining welfare benefits, sorting out any care and health requirements besides debt advice.
There are many more free services to help you get your debt problem under control and these are just a few of the larger networks available. If you really want to get out of debt and don’t know how then pick up that phone to get the ball rolling.