10 Ways to Get Out of Debt

Whether or not there is a credit crunch on at the moment or not, a vast majority of people always in debt. Once in debt, it is very difficult to get out. After all, we are all only 3 pay packets from being homeless ourselves. So what can we do, and where to start? Firstly, it is time to face up to it and take charge, and follow these 10 steps to becoming debt free.

1. Instead of putting all the red bills into the bin, open them up and put them in order. Then obtain a copy of your credit report to see if there is any additional companies that you owe money to, and that all your records match up. Add all your debts together - ALL of them and get your total.

2. Now make a realistic list of all your bills, rent or mortgage, heating, electricity, food, work, petrol, insurances etc. Do not underestimate them as you want to create a budget that can help you breathe. Add them up and deduct them from the amount that you earn. Income minus essentials. This should leave a small balance. This is all that you have to clear your debt but it is a start. Divide this amount by the number of bills that you have, and write to each company offering this as a minimum payment. You will have to provide an income and expenditure sheet to show that this is all that you can afford but at least now you have taken the bull by the horn! The companies that you owe money to will be relieved to have some reply from you and may even freeze the interest while you get back on your feet. More importantly, now, providing you stick to your agreement, there will be no more hefty charges for late or absent payments.

3. At this stage, it might be tempting to consolidate all your debt and take out one big loan to cover it all. However you will be paying the full interest on each of your existing debts as well as the interest on the loan so this is an expensive option. Also, does your leftover cash cover the monthly payment for the consolidation loan? Probably just about, and you will be left as stuck as ever, paying a loan for items long ago spent or used. Do not borrow any more money!

4. Now that you have made a start, make sure that you budget daily spending. Only take with you the cash that you need, with a list of the essentials that you are shopping for. Leave all cards at home and resist temptation to buy non-essential goods.

5. Pay existing bills on time to avoid additional charges. This will help your credit record as it will show you as a regular payer. Direct debit is good for those who get paid monthly. Move all your direct debits to 2 days after you get paid and only life a small amount of cash to live on until bills are all debited from your account? If you are not paid monthly, set up online banking and bill payments. Set up reminders for the payments each week and pay the bills online so that you never miss them. If you have fallen out of favour with the bank, get the bill companies to send payment slips for the post office and make an effort to go there on payday and pay the bills. This will mean that you do not slip further behind.

6. Now you are in control. Check you bank statements to see if you are paying for an old service that is no longer in use. These may only amount to a few pounds, but ring the bank and get them cancelled.

7. Once you have made a few regular payments with each company that you owe money to, ring them and see what they can do to help. They may switch you to a different account, or accept a settlement offer or freeze interest on the account. While you keep the lines of communication open with them, they will help as much as possible.

8. Cut up cards with large interest payments. This includes store cards. These are impossible to pay off while you keep using them and help keep your debt alive. These normally pay for non essential items and so you are better off without them. Learn to save for the items, because while you buy with thesw, you are paying double for each item.

9. Ask your bank to temporarily increase your overdraft. If they do, this is a cheap form of borrowing. Use this to pay off your smaller debts. This will also mean that you will be able to pay the bills without incurring bank charges. Once you pay off the smaller debts, it is easier to focus on the large ones that will take longer to pay off. It will improve your credit reports as it is silly to be defaulted for small debts.

10. Switch accounts. Shop around for the good deals on heating, broadband, phone, electricity, credit cards, bank account, mortgages, insurance etc. While you save a few pounds a month, you will be able to see the benefit of your budgeting.

Ignoring your debt will not make it go away. Putting the notices and red letters in the bin will not make them disappear. Take action and take control. Even by paying a small amount you are taking appropriate action. If you are scared to answer the phone and your finances are out of control, follow these steps and see the light.