Many people struggling with debt do not necessarily need to take drastic action to actually get on top of their debt problems.
Debt solutions such as IVA's, Trust Deeds and many debt management programmes often have strict criteria on who can actually apply, such as the number of creditors or the amount of debt that you currently have. In other cases, it is advisable to avoid taking such routes to preserve your credit score as much as possible.
An IVA or Trust Deed in particular can seriously affect your ability to obtain credit in the future and, in the case of a Trust Deed, could see you giving up some of the equity in your home. For these reasons, such drastic solutions should be seen as a last resort.
Instead, there are many things that you can do yourself to cut your monthly outgoings and reduce your debts.
Below is a brief guide to help you reduce your debts without harming your credit score.
Look at your existing budget
Take a good look at your existing budget. Review your bank statements to look at your current income as well as your regular outgoings to see if there are any areas on which you can cut back.
Factor in your monthly essentials; food, utility bills, council tax, rent or mortgage payments, transport costs etc to see where your income is going. Once you know where your income is going, it will become easier to reduce your outgoings.
Cut your spending without cutting back.
There are several ways in which you can reduce your spending without necessarily cutting back on the essentials, with one of the easiest places to start cutting your costs being the supermarket and the shopping centre.
Are you buying branded food products? Try cutting down to the store's own-brand alternative. In many cases, the white-label products still come from the same factory as their more expensive rivals. Experts believe that the typical £100-a-week shop could drop by as much as £1,700 a year by switching from premium brands to no-frills labels. Apply the same to other forms of spending as well - budget supermarkets and retailers are thriving despite the current financial crisis.
Also look at your utility bills. The market is now wide open for companies to come in, undercut their rivals and offer you cheaper gas, electricity, broadband, telephones and digital television. Find out if you are on the cheapest deal and switch if necessary.
Cut out the luxuries.
Whilst we all enjoy foreign holidays, flat screen televisions and designer clothes, there is no point getting into debt, or cutting back on the essentials, to get them. It’s very easy to reduce or even cut out needless spending.
Cutting down on waste food, digital television subscriptions and gym subscriptions that are rarely used are just a few examples of easy steps that you can take that can lead to massive savings.
Claim what you are entitled to.
Official figures released in 2006 claim that around £13bn in benefits is currently going unclaimed, with tax credits, council tax benefits, pension benefits and income support being amongst the biggest forms of benefit in which people are not claiming the money that they are entitled to.
If you are a low-earner, unemployed, have a disability or illness, of have children, you may be entitled to money that you are not currently claiming. There are various online guides that will tell you what you are and aren’t entitled to. If in doubt, your local DWP Office or Citizen’s Advice Bureau should be able to help.
Reduce the cost of your credit card debt.
If you currently have debts on credit cards or store cards, then you may be able to reduce the cost of your overall debt by transferring your balance to another card.
Many credit card companies now offer 0% APR on balance transfers for a certain length of time, typically ranging from 3 to 12 months depending on the card, which (aside from a small admin fee) could make your existing debts free from interest charges for up to a year
With a balance transfer, take out one credit card with a 0% balance transfer deal and use this to repay your existing card or cards (on which, you could be paying interest rates of anything up to 30% APR). You then make payments on the new card but, because no interest is applied, you will not be charged for the duration of the 0% period, allowing you to pay-off the debt faster. Some balance transfer cards will also let you transfer loan or overdraft debts.
There are stipulations with these deals however. Firstly, most 0% credit cards require you to have a good credit score. If you are already in arrears of have a record of credit problems, you are unlikely to be accepted. Secondly, you much make the minimum payment, on time, every month to keep the 0% deal. Miss a payment and the deal will end.
By taking some relatively simple budgeting steps and, in many cases, making minor changes to your spending and lifestyle habits, you could come up with a budget plan that helps to become debt free.