Being in debt is no fun. But getting out of debt isn't this easy thing that you can just decide to do one day and the next day be done. It takes a plan. If you are trying to plan to get debt free, read on to see what a reader has to say.
1. Assess Your Current Financial Situation
The first step of the thorny process of dealing with your debt is to understand where you stand. Put together a list of all your debts. Include credit card debt, store cards debt, loans, mortgages and overdrafts. The point of this exercise is to determine who much you owe on each of these items and how much you're paying on a monthly basis.
2. Create A Household Budget And Cut Your Spending
A good household budget should include the sum total of your monthly earnings and a breakdown by category of all of your monthly expenditures. This should allow you to gain a better understanding of where your money is going. It should also help you find ways to reduce your spending without affecting your quality of life.
By developing a budget plan and by sticking to it every month, you'll know exactly how much you'll afford to spend, thus providing you with an effective tool to help you get rid of debt.
If you don't know how to create an effective household budget, check out debt advice UK for more tips.
3. Check Your Credit Report Without Paying A Free For That
Checking your credit report is one of the key elements of your journey to becoming debt-free. This would allow you to spot any mistakes you may be making, mistakes that might prevent you from getting credit.
The three main credit reference agencies that compile credit reports in the UK are TransUnion, Equifax and Experian. Thanks to the new GDPR rules, the £2 fee for accessing your credit reports has been waived. It's your legal right to have free access to your credit report.
Credit reports may be difficult to read and to understand by people who have no finance educational background. If you are in this situation, you may want to use the services of Credit Karma, Clear Score or other similar companies to understand how lenders are likely to assess your financial health by reading your credit score report.
Click here to find out what these scores mean and how to get your credit report for free.
4. Find Effective Ways To Improve Your Credit Score
Now that you know how to find out what your credit score is, let's see what you can do to improve it.
Two of the most common mistakes are not registering to vote and not counting your rental payments against your credit score. Both of them are easy to correct and they can help you improve your credit score.
5. Pay Off Debt Before Considering To Save
While an emergency fund can surely help you in times of trouble, it doesn't make sense for you to save instead of paying off your overdraft or your credit card debt.
No savings account in the world would offer you a rate that's higher that the interest rate you're paying on your credit card debt or on your overdraft. For your information, the average credit card APR is 19%.
By using your savings to pay off some of your debt, you can save heaps per year in interest charges.
6. Keep Debts And Savings Separate To Prevent Setting-Off
In order to have more control over your finances, keep your debt and savings with different providers. This way, you don't risk that they use the money in your savings account to pay off your personal loan or your credit card debt.
Even though this isn't such a common issue, it can happen. When it does, it can take a heavy toll on your cash flow. It's best to avoid it in the first place by setting up your savings account with a bank or financial institution that has nothing to do with your debts.
Click here to check whether your savings and your debt are with the same financial institution.
7. Don't Worry, Be Happy!
Worrying about debt is one of the main triggers of mental health issues. Try not to worry, but take active measures toward improving your personal finances by taking small steps, one at a time.