A 5 Step Guide To Controlling Finances And Eliminating Debt

Millions of people rely on their credit cards to finance everyday purchases. Their debts continue to skyrocket as they are affected by inflation and salary cuts. Commonly purchased items like gas, food, and fuel grow more expensive every year. Those with lines of credit are entering the new year with larger debts than ever before and they are at a serious disadvantage. In many cases, those debts will grow significantly larger by the year’s end.

It’s estimated that around 40 percent of residents will purchase this month’s groceries using a line of credit. Around 10 percent of residents plan to use their credit cards to purchase gifts for Christmas this year. However, less than 7 percent pay for their domestic bills using their credit card.

Debts tend to grow significantly in the last few months of the year. For example, most homes use nearly half of their yearly energy consumption between the months of November and February. Quarterly bills in February are often above £500. Combine high energy costs with holiday spending and you have yourself a recipe for a significant amount of debt.

Credit cards aren’t the only source of debt that plagues UK homeowners. In some years, more than 1 million homeowners have used payday loans to cover a monthly mortgage or rent payment. Payday loans are notorious for their high-interest rates. It’s also estimated that more than 6 million UK residents have paid their housing costs using a combination of credit cards, overdrafts, and other short-term loans.

There is minor good news around the corner. Inflation will likely decrease in the months of February and March, but this decrease isn’t enough to relieve the burden of debt. Household expenses will still be the same and most people won’t notice the difference.

This all leads to the question, “What can be done about debts?”. If you already have an existing debt or you know that you will be accumulating one in the future, then you need to follow a proper course of action. That course should involve living as efficiently as possible and borrow as cheaply as you can. Following are five steps that you can use to correct your financial habits and steadily gain control of your debt.

1. Calculate Your Exact Debt

It’s surprising how many people are in debt, yet don’t know the amount of their debt. It’s imperative that you calculate exactly how much you owe, where the money is owed, and how much interest is being paid. This is even more important if you rely on credit cards that are operated by a different company than the one that sold it.

Most companies won’t allow you to take out secondary loans to consolidate their debt if you already have a loan or line of credit with them. Attempting to do so could also put a rejection on your credit record which is likely to hurt your chances of future loans from different lenders.

Finally, after calculating all of the information discussed above, you’ll need to determine how much you can comfortably pay every month.

2. Make The Move To Zero Interest

Attempting to pay off a debt in addition to a high-interest rate can seem impossible. Luckily, if your debts are limited to only a couple of cards, you have options. One of the best ways to eliminate interest is to transfer the balance to a credit card offer with zero interest. These cards are often limited in regards to how long they offer zero interest, but it may be enough time to pay off the debt without dealing with interest rates.  There are several different cards on the market today that offer zero interest periods for between 12 and 24 months.

3. Begin Debt Consolidation

It may be possible your debts are already too large to be moved onto a single card. If this is the case, then you will need to take a different approach to debt consolidation. You have two options to choose from. The first option requires moving as much as possible to a single card as mentioned in step two. You then make the minimum payments on the card while focusing on paying off the larger debt.

The second option is a large loan for consolidation.  It is definitely more expensive than the first option, but still often cheaper and easier than paying off many separate debts. And because all of the payments are fixed into a single payment over a specific period, you know your debt will be eliminated when that period ends as long as you make the appropriate payments.

4. Take Control Of All Other Financial Obligations

Even while paying off a consolidated debt, you will still have plenty of other financial obligations to worry about. It’s important that you keep them under control and as affordable as possible so that they do not hinder you from repaying your loan. The most common obligations residents have are their mortgage, their utilities, their overdraft fees, their credit cards, and their insurance payments.

Overdraft: If your account is stuck in an eternal overdraft stage, then you need to make sure you aren’t paying too much. One of the best ways to get this under control is to transfer to a bank that does not charge for overdrafts for a certain period of time. Some banks will provide a year without overdraft fees and then very small fees afterward.  Santander is a great example of a bank that offers low overdraft fees and they even offer £100 incentives for switching.

Mortgage and utilities: Many homeowners spend a significant amount of money on these two expenses each month. You can save money on utilities by switching to whatever the market-leading deal is at the moment. Don’t settle for the same fixed deal after it has ended. As for your mortgage, it may be possible to reduce this expense, but you’ll need to discuss it with a professional mortgage adviser.

Credit cards: You may decide you still need to make purchases with a credit card while paying off your debt. If so, try to find a card with a long period of zero interest fees. One great example is the Tesco Club card, which will allow for 15 months of interest-free purchases.

Insurance: Everyone has to pay for insurance, but not everyone has to pay the same. Diligent research can help you find great insurance deals for low prices. Consider using the site money-deals.co.uk to compare local insurance policies.

5. A Final Desperate Option

If you still feel as though you can’t get your debt under control, then you may need advice from a professional debt counseling company. A few options include National Debtline and Citizens Advice. These companies will help you determine a more personalize course of action for your specific debt problems, such as building a budget and developing healthy spending habits.

Do not make the mistake of borrowing from a short term payday lender to help cover expenses while paying off your debt. If you already have these then look for help from a reputable company. The interest rate for such loans can range anywhere from 300% to 4,000%. They are easy to find, but they are never worth the expense.

One final source of relief could be from a local credit union. Whether or not you qualify for a loan from a credit union will depend on a number of factors, such as your location, religion, or line of work. Their loans are similar to payday loans, but with a considerably lower APR, thus making them a much safer option for quick, emergency cash.

Author: frugalandpretty