To help you reach your goals and take control of your debts we’ve broken the process down into 4 manageable steps. Each week, we’ll guide you through the action plan with a clear to-do list so you know exactly what you need to do.
Step 1: Make a plan
Taking control of debts is taking control of your life. Paying down your debts can help you build your credit score, deal with anything unexpected life throws at you, and it will likely save you hundreds (and maybe even thousands) of pounds in interest.
And the biggest benefit of all is that taking the steps to pay off your debts is going to help you achieve your goals. Whether you want to buy a house, have or care for a family, or simply be in a place where you’re not worrying about money; paying off your debts is one of the best ways to get you there.
There is always a way to deal with debt, no matter how impossible it feels. The most important thing is to start tackling it. Right now.
But we get that's it's not always easy. Luckily you won’t have to do this alone - we’re here to help. We’ve broken the process down to take you through step-by-step. All you have to do is tick each item off of your To-do list and you’ll be well on your way to tackling your debts.
This week we’re looking at taking the first leap and making a plan.
1. Get a pen and paper or open up your computer
The first step is that easy. If you’re aiming to tackle your debts, you need to know where you stand. Making a list of what you owe can feel surprisingly good and it will help you work out what you can do.
Use whatever you like for your list, a piece of paper, an app, a spreadsheet, or even a napkin. Got what you need? Great – you’re on your way. Let’s keep going.
2. Gather together all the letters from your lenders
You might be able to remember exactly who and how much you owe, but it’s good to double check so you can get the most accurate list together.
If you never get paper statements and mostly deal with your lenders online open each account in a new tab.
If you know you’re going to have to call a lender to find out about the status of your debt, write down their contact number next to their name.
Open any letters you’ve been avoiding. We’ve all done it, and it’s likely this is going to be the hardest step but it’s a quick one. To be honest, there are probably just a handful of letters that are actually relevant. Find the letters that matter right now and then get rid of the rest.
Pretty easy so far.
3. Write a list
Start going through each account one by one.
On your piece of paper write down:
- The name of the debt
- How much you still owe
- What the interest rate is
- If it’s a loan, also write down the payment deadline
You might have to give some lenders a call to find out where you currently stand, especially if you’ve requested annual statements.
If the list gets long, don’t panic. Be kind to yourself – relax, make a cup of tea, but don’t start on any other tasks. Most importantly, don’t give up. Just get to the end of this step.
4. Check your credit report
You may have debts out there that you don’t know about, especially if you’ve moved house.
Your credit report will also give you key information like balances, lenders names and details, arrears, and details of late payments. Add any other accounts from your report to your list.
5. Think about non-consumer credit and add them 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. This is also a good time 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. Just remember that this is the first step, and it may feel a little uncomfortable for a while.
6. Split your list into priority and non-priority debt
Read this article to find out what counts as a priority debt and what is non-priority. Then go through your list of debts and put each one into these categories. This will make it easier to decide on your plan of action by helping you to decide which debts to pay first.
7. 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’ wages after tax?
- Does your debt feel unmanageable, or have you tried 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] (https://clearscore.com/credit-cards/where-to-find-debt-advice-repayment-options) for some more tailored help on putting together a plan and where you can get help.
If you’ve mainly answered no to these questions then you should be able to service your own debts.
8. Put your plan together
Now this bit takes a little bit more work but bear with us.
Armed with your list of debts, your plan should outline how you intend to pay them. Reorder your list so that they are in the order you want to focus on them:
Put the priority debts at the top - you need to make sure you’re paying these and that you can continue to do so.
Next put 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 what 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 your strategy in place it’s time to pay those debts down. Stay tuned for next week to find out more about this...