To help you reach your goals and take control of your debts, we’ve broken the process down into 4 manageable steps. With each article, we’ll guide you through the action plan with a clear to-do list so you know exactly what you need to do.
Now you’ve worked out how much you owe and to whom, it’s time to make a plan.
Step 2: Ready, set, plan
Check your credit report
Before you make a plan to pay down your debts, remember that you may have debts out there that you don’t know about, especially if you’ve moved house.
This isn’t something to worry about, and checking your credit report is a simple way to know where you stand.
Your credit report gives you key information like account balances, lenders names and details, arrears, and details of late payments.
Don’t forget to add any other accounts from your report to the list of debts you made in step 1.
Think about non-consumer credit and add to your list
This includes things like council tax, TV licence, court fines, and other debts that you may have that won’t appear on your credit file. Make sure to add any informal debts to your list, like money you owe to friends or family.
It’s also good to think about debts that haven’t yet become a debt. Maybe it’s a tax bill that is due very soon but which you may not be able to afford.
It’s perfectly natural if you get to this point and are feeling overwhelmed with how much you owe. Making a plan should put your mind at ease knowing that you’re more in control than before.
Split your list into priority and non-priority debts
Then go through your list of debts and categorise each one as a priority or non-priority. This will make it easier to decide which debts to pay first.
Ask yourself the following questions
Everyone’s debts and circumstances are different. That means there’s no single ‘right’ way to approach your debts. But asking yourself a few key questions will help you to work out your next steps.
- Am I struggling to cover the essentials? (Think about how much you spend on food and transport for example, and all the priority debts we’ve mentioned above.)
- Does the total of your debts come to more than a years’ worth of wages after tax?
- Does your debt feel unmanageable, or have you tried and failed to tackle it before?
- Is paying more than the minimum amount each month impossible?
If you’ve answered ‘yes’ to any of these questions, head over to this article for some more tailored help on putting together a plan and where to find help.
If you’ve mainly answered ‘no’ to these questions then you should be able to handle this one.
Put your plan together
Armed with your list of debts, your plan should outline how you intend to pay them.
Now, reorder your list of debts so that they’re in the order you want to focus on them:
- Put your priority debts at the top of the list (you need to make sure you’re paying these and that you can continue to do so).
- Rank your debts in order of interest rates - highest at the top lowest at the bottom.
- One of the most popular ways to tackle debt is to focus on paying those with the highest interest rates first – even if this means paying only the minimum payment on any other debts. This is the most cost-efficient in the long run as you'll pay less interest overall.
- Work out how much you can afford to pay.
- If you don't already have a budget, use this budgeting tool from the Citizen's Advice Bureau to set one up. This is going to help you work out how much money you have coming in, what your outgoings are, and how your debts fit into that. By doing this step (even though it's a bit boring) you can see if you can cut down in places to service your debts.
Now you’ve got a plan in place, it’s time to start paying down your debts. Don’t rush to pay them all off at once, this one will take a bit of time. All you can do is all you can do.
Head to step 3 of the debt series when your plan is underway for some tips on keeping your money in check while you tackle your debt.