Assessing our outgoings and then making a realistic budget to assist with repayments are two effective tools to help us take control of our debts.
It's also crucial to understand the consequences of not paying a debt, even when burying our head in the sand is tempting.
A realistic assessment of our current situation and where we want to get to can be our secret weapons when it comes to dealing with debt.
1. Assess the problem
The first step towards dealing with debt is to assess the problem. Without understanding how much we need to repay, it's impossible to come up with a budget or a plan to repay it.
Start by making a list of all debts owed, including those that may not yet be being repaid such as student loan debt - these can add burdens to our budgets further down the line so it's important to be aware of them.
Debts could include:
- Credit cards
- Unsecured loans
- Store cards
- Payday loans or other high-cost short-term debts
- Utility arrears
- Student loans
Many of us will also have secured debts too - mortgages on homes or car finance where we risk repossession if we don't keep up with repayments.
These are often known as "good debts" because they help us reach our long-term goals of home or car ownership. These debts can become problems if we fall behind on repayments, though, so be sure to include them in your calculations.
Once we've got a list of our debts, it's useful to highlight priority ones. These are the ones we should try to pay first.
What are priority debts?
Priority debts are the ones that will trigger the worst consequences if we fail to pay them.
Debt charity StepChange highlight the following as priority debts:
|Type of debt||Consequences of non-payment|
|Council tax||Bailiff visit, money taken from wage or benefits, debt secured against home, bankruptcy, imprisonment|
|Child maintenance||Money taken from wage or benefits, bailiff visit, imprisonment|
|Magistrates' court fines||Bailiff visit, money taken from wage or benefits, imprisonment|
|Tax, VAT or National Insurance||Bailiff visit, money taken from wage, bankruptcy, County Court judgement (CCJ)|
|County Court judgement (CCJ)||Bailiff visit, charging order, money taken from wage|
|TV licence||A fine|
|Gas or electricity||Disconnection, money taken from benefits|
|Hire purchase or logbook loan||Repossession, County Court judgement (CCJ)|
|Telephone||Disconnection, County Court judgement (CCJ)|
There are differences across the four UK nations for some debts, so be sure to check the StepChange link above for more local information.
If the bailiffs have already been in contact, here's what to do.
Check your credit report
Another key element of getting to grips with our debt is understanding how our creditors see us - this can help if we need to take out more credit as part of our debt repayment strategy.
It's also useful to see if there are debts run up by others in our name as we may be liable for these - learn more in our guide about what to do if a spouse runs up debt in your name.
2. Make a budget
Once we have a clear picture of what debts we owe and which ones are the most important, it's time to make a budget and figure out a repayment plan.
Budgeting is notoriously difficult, especially when we're looking at large amounts of personal debt. It can seem as though it will never be repayable, but once we break our incomings and outgoings down into manageable chunks, we can get a better picture of how things really stand.
A good budget should include:
- Accurate information about outgoings
- Manageable goals
- List of essentials
- List of luxuries
- Detail of regular payments
One problem with many budgets is people set unrealistic goals and get frustrated when they don't meet them - that's why figuring out where you can cut back is best done on an item-by-item level. It's easier to cut down to one lunch out every week rather than cutting it down to zero and having nothing to look forward to.
3. Seek the right help
Budgeting tools and debt advice from the right organisations can help us make sense of our debts and figure out a plan.
The first port of call for many of us will be the in-app budgeting tools provided by our banks or perhaps a third-party budgeting app like Emma or Yolt.
These can definitely help us get a handle on where our money's going, but beyond that it can be useful to consult experts.
Debt advice should always be free, and there are some legitimate organisations dedicated to helping people understand and address their debts.
These are some of the big ones:
- Citizens Advice
- Debt Advice Foundation
- Debt Support Trust
There's more information on these services in our guide on where to get help with debt.
Be aware there are some companies out there who make a profit from helping people manage their debts - read our guide on the differences between debt charities and debt management companies to find out more.
There are also plenty of companies promising to wipe our credit card debts - read more about those promises and why you should approach them with caution.
More specific help
The organisations mentioned above offer general advice on debt and may be able to direct to groups specialising in particular debt types.
We've got a guide to help those in debt with their utility bills, including lists of funds to apply to for assistance.
For older people struggling with debt, we'd also recommend reading our dedicated guide.
Debtors who have mental health problems should also read this guide about the rules companies must follow when dealing with mental illness and debt.
Debt reduction strategies
When we're looking at ways to reduce our debts, some strategies will be discussed regularly. We've got guides on some of the common ones:
- How to get a 0% balance transfer with poor credit
- Can I balance transfer to a current account?
- Can I repay my loan early?
- 0% or life of balance transfer credit card: which saves more?
- How to repair a credit rating in 30 days
It's also worth noting credit card companies are required to offer support to customers in persistent debt, and the Financial Conduct Authority (FCA) is keeping an eye on how they handle this.
4. Be realistic
It's important to be realistic about the length of time it will take to pay off outstanding debts and to see the long-term picture rather than the short term one.
Dealing with debt should be part of an overarching financial strategy which looks at all elements of a household's finances such as:
- Cost of bills like energy and broadband
- Subscriptions to streaming services and gaming platforms
- Whether insurance policies are rolling over
- Unused subscriptions to gyms, cinemas and other leisure locations
- How much is being spent on luxuries and whether they're worth it
Approaching our debt problems doesn't mean we have to stop enjoying life. In fact, if we look closely at the payments we're making every month, it's likely there are savings to be made.
Even if we manage to lower our annual energy bills by £120 per year, that adds up to £10 extra in our budget every month. Not using that Netflix subscription? That could be £12 per month saved. Car insurance premiums too high? That could be another £10 per month.
It's tempting to see these savings as extras that can then be put into luxuries like meals out and leisure activities but putting those savings towards reducing debt instead will be a benefit in the long term - and we don't miss what we've never had in our pockets.
So, if we do manage to trim our monthly outgoings, putting that money towards paying extra on our credit card debts or other debt arrears can help us become debt free.
If there isn't anything we can pay extra on at the moment, put those savings in a separate pot or account so they can be used when needed.
Read more about how we're managing our debts in the UK.
5. Be aware of your stress levels
Money worries can have psychological and social implications, and it's fine to admit that you're struggling to get your finances in order.
Sometimes, the very act of writing down our outgoings and making a budget is enough to trigger a mindset change, but there will always be moments when we wonder whether it's worth it and when the situation becomes very stressful.
We've already mentioned the organisations people can contact to get help with debt, and it's important to realise these groups sometimes offer resources to help us manage the stress associated with debt.
Customers classed as vulnerable can approach lenders and request more support in repaying their debts, and many companies will be pragmatic if they know a debtor is severely struggling - their goal is to have the debt repaid and it's less likely to happen if a customer doesn't feel able to cope.
So, keep track of how debt is affecting your mood and seek help if necessary.
Conclusion: Be debt aware
Debt can have a severe impact on our everyday lives until we take steps to limit the power it has over us. Even then, it can be a long road to becoming debt free and feeling in control of our finances again.
Here are some steps you can take right now to start the process:
- Assess your outgoings, especially focusing on subscriptions that could be culled or bills you might be paying too much for.
- Prioritise your debts in a numbered list
- Create a manageable budget
- Look at whether a debt charity could help you take control
- Compare deals on energy, broadband, mobile or insurance to lower your monthly bills
Taking action to get out of debt is hard but it's important to remember there are organisations out there who can help - here's that link to finding assistance with debt again.
Once you've made a plan and started to implement it, debt will seem far more manageable.