If you have multiple debts and loans you must pay every month, this can quickly become problematic, especially if they begin to outstrip your monthly income. When this happens, your debt becomes ‘problem debt’ and can result in severe issues like court orders and bailiffs, depending on the type of loan. It can feel overwhelming when your debt starts to mount up, but there are some straightforward actions you can take to get control over your finances and begin to pay off your debts.
Avalanche your debt.
If you have multiple loans and are making payments on all of them, the most effective and fastest method to pay them off is to start with the one with the highest monthly interest, and then bring your minimum payments to the minimum for the rest. By doing this, you’ll reduce how much interest you build up, and as you lower the amount you owe on your high-interest loans, you’ll see the amount you’re paying off the actual amount you owe come down far faster. If you leave a credit card with 18% interest for several months and only pay the interest, you’re paying every month, but making no actual impact on the debt itself. This technique is called the ‘avalanche method’ and is the most recommended approach to attacking multiple loans.
Get help if you need it.
If you’re reaching the point where you feel that you may miss a loan payment, or have already received warnings, seek help from a professional. Many organizations will offer free advice and only request payment if you use one of their services, so it’s an excellent place to start if you’re overwhelmed. When you contact a debt advice company, they will present you with several options to help reduce or even write off your debt if your situation allows it. If you have several loans, you’ll be able to arrange a debt management plan, which will consolidate your loans into a single payment that’s affordable to you based on your income. For people with lower income and few assets, then an individual voluntary agreement is the best choice – you can find an excellent guide to IVAs at https://www.jubilee2000uk.org/iva/a-guide-to-ivas-or-individual-voluntary-arrangements-in-the-uk.html/.
Cut your costs.
The best way to move from problem debt, where you’re struggling to meet payments to manage debt where you’re in control, is by cutting your costs and increasing your income when possible. A logical place to start is checking your insurance and bills to see if you can find any cheaper options, which will often be the case. These services all have a significant ‘churn,’ meaning that people move around providers every few years, and the service providers usually offer cheaper deals to people willing to switch. If you’re on an Internet contract from a few years ago, for example, it’s almost sure that there will be a cheaper alternative available if you shop around.
Skip on brands.
A quick way to lower your weekly and monthly costs is to skip on branded goods when buying your groceries and opting for the cheaper alternatives. You don’t necessarily have to swap supermarkets, although this may help, but choose goods that don’t have top brands on them, such as the supermarket’s own branded selection. You’ll often not taste the difference, and maybe get a similar product for half the price.
Review your subscriptions.
The subscription method of charging for a product or service has become increasingly popular, with our music, TV, and many other services now on a pay-monthly basis. Take an hour to check your bank statement for standing orders and direct debits you don’t notice coming out of your account. You may find that you still have a subscription you took out six months ago that you aren’t using. You can also look at consolidating your subscription services, with streaming services being a good example – if you have multiple places you like to watch shows, then figure out which you use the most and cancel the rest.
Apply for help with bills.
If you’re in a low-income household, there may be options available to pay your bills. Many energy providers like British Gas and Npower have grants and schemes available to help subsidize how much you pay each month for your gas and electricity. Even if you’re not eligible, you may speak to your providers and see if there’s a lower payment plan that you may be moved on to due to your situation.
Check your eligibility for tax credits.
Tax credits are given out by the government to help people that have children, workers on low incomes, and disabled workers split into working tax credits and child tax credits. These are usually means-tested, so it will depend on how much your household makes each year to determine if you’re eligible. There’s also the option for pension credit, which is a means-tested benefit that adds to your state pension, and around a third of people qualified fail to claim it. Child benefit is another payment that the government offers to people responsible for a child, not just to the biological parents of a child. To get this benefit, the child must be under 16 and can be more than £1000 per year for the first child you claim it for.
Claim any benefits you’re entitled to.
Some view word benefits as a negative one, but this doesn’t have to be the case. Benefits exist for a reason and are given to many people, so you may not be aware that you’re eligible to claim them. Universal credit has recently replaced housing benefit, income support allowance, jobseekers allowance, child and working tax credit and income support in the UK, and some people even if they are working and don’t have children. If you’re not sure if you’re eligible, you can use this free calculator to see if you’re missing out on any benefits you’re entitled to claim.