So You’re In Debt? What To Do Next.

Although most of the things that people search for that brings to to The Frugal Cottage, I have seen an increase in searches relating to living with, or coping with debt. Now, I need to start off this post by saying that I have, fortunately, never been in debt. I realise that I am very lucky in that respect, but I thought I would do a post to help those who are struggling with the burdens that debt can bring.

 

Having debt can be crippling, especially if you cannot see a way out of your current situation. The never ending cycle of borrowing, paying back and not having enough money at the end of a month can mean that many people spend months, if not years paying back debt. In some cases, people pay back over double of what they originally borrowed, due to rising interest rates and harsh payment schedules. This post by The Money Charity paints quite a scary picture for the UK – one of the numbers that jumped out at me was:

BASED ON DECEMBER 2014 TRENDS, THE UK’S TOTAL INTEREST REPAYMENTS ON PERSONAL DEBT OVER A 12 MONTH PERIOD WOULD HAVE BEEN £55.4 BILLION. THAT’S AN AVERAGE OF £152MILLION PER DAY. THIS MEANS THAT HOUSEHOLDS IN THE UK WOULD HAVE PAID AN AVERAGE OF £2,074 IN ANNUAL INTEREST REPAYMENTS. PER PERSON THAT’S £1,096 – 4.35% OF AVERAGE EARNINGS.

£1,096 a year in interest payments alone is a hefty chunk of money – just think about what you could buy with that amount. A week away for the family, however many weeks of grocery shopping or an addition to your pension pot. I can see how and why, when you’re in debt, how much pressure it must put onto families, and individual people. I post on various forums, all of which appear to have a debt section, and some of the posts that are posted by new members are heartbreaking. They can see no way out, things seem impossible and there isn’t anywhere they can turn.

 

The first thing to do is to be honest. You’re in debt? Okay, admit that and realise that this is not the worse thing that can happen. Yes, debt is not good, and there may be a hundred different reasons as to why you are in debt, but there is a solution to it. There will be an end point, and there is a light at the end of the tunnel, I promise. The journey ahead may be tough, and it might raise lots of personal questions along the way, but you are strong enough to get through this and come out of the other side, a much happier and stronger person.

 

The next thing to do is look at all of your statements. Even the ones you haven’t opened as they arrived at the door, be brave as this might be a difficult step. Add up the total amount of debt you owe – you need to know this as a starting point, so that you know what you are dealing with. Again, this number might upset you, or scare you, but nothing is impossible. You need to know so that you know what you are having to face. Hiding and pretending the debt doesn’t exist will only make things worse in the meantime, and the stress you feel will get worse. On your statements, there should be a % number which tells you what the APR (Annual Percentage Rate) is on your different accounts. The higher the number in this section, the quicker you want to get rid of this debt. Interest rates, especially on things like payday loans and certain credit cards can be ridiculously high and make it almost impossible to get to a zero balance. But you can, it may just take a while.

 

Next, figure out your budget. You need to know what your incomings are and what your current outgoings are. Include everything that you get in as income, including any tax credits or additional income. Your budget  should, in theory, come under what you earn. But, life is not always as easy as that. It is incredibly easy to spend outside of your means, or perhaps a family member has been made redundant so the income every month is reduced. Either way, you need to know just how much you have coming in and going out each month. It surprises me just how many people don’t know how much their household earns and therefore, cannot know whether they come in under budget or not.

 

These posts should help with budgeting:

• How To Make A Budget
• 3 Easy Ways To Stick To A Budget
• How Our Budget Works + A Free Budget Template!
• Healthy Eating On A Budget

 

Martin Lewis, of Money Saving Expert, has a guide to balance transfer credit cards. If you have credit cards with a higher rate of interest, then transferring the balance to a card which has a lower APR can massively help when it comes to repayments. Having less interest to pay means you start to pay off the capital sooner rather than later. The link explains all this, plus shows the best deals in the UK at the moment for balance transfer cards.

 

Lastly, please do not feel like you are alone. Being in debt can be a lonely, scary place and lots of people feel embarrassed by the situation they find themselves in. There are many debt charities in the UK that are there to help you, and give free advice. Just talking to someone about it can help; please do not suffer in silence. There will be a solution to your own individual circumstances, and talking and reaching out for help will ease the pressure on you. The Money Saving Expert website has an excellent debt free wannabe forum where there are lots of helpful people there to support you.

 

There are also various UK debt charities that are there to help you:

• StepChange
• Debt Advice Foundation
• Citizens Advice Bureau

 

I hope this post helps someone and points them in the right direction so that they can get the help they deserve.