Take these six steps to live a debt-free life this year.
At the top of many people's New Year resolution list every year is a vow to get their finances back on track.
You might not have a debt problem or need free debt advice at the moment. You might just be aware that you could assert a little more control over your wallet or purse. Today StepChange Debt Charity give you six top tips to help you take back control this year. You can do it!
1. Put a budget in writing
The first step to tackling any sort of financial or debt issue is to put together a budget. This might seem like simplistic advice but it's true. Budgeting is an art, and putting together a budget is no easy task, but the key is that the budget must be accurate.
Don't put down what you think you spend, put down what you actually spend. And study it. Can you cut back in some areas? That could mean more money to pay down your debt or save for the future.
A fudged budget will never work, as you're only cheating yourself. You need to list every bill and every area of expenditure right down to the newspaper you buy every morning (little things soon add up). And even the act of writing it down helps – psychologists have found that writing is very powerful in forcing people to take action.
2. Consolidate or not to consolidate?
When you take out a consolidation loan to clear credit cards and loans you're often just making your debts bigger, and payable over a longer period of time.
As ever, the first thing to work out is that you can actually afford the monthly payment of the consolidation loan, without ever resorting to using credit again.
Not considering this is a mistake we see time and time again. People consolidate their debts, and while they clear their credit cards they have to start using them again. This vicious circle often comes down to not budgeting. In a lot of cases we see, another similar debt is run up again after a consolidation loan is taken out. Be wary of consolidating.
3. Cut up the cards and pay off the highest interest first
Cut up the cards? Oh yes. We've even seen a few articles where people put their credit cards in ice or peanut butter so that they can only use them when they absolutely have to.
Before you put your card on ice, complete an accurate budget (see 1) and then cut up the cards. Once that's done have a look at which card has the highest interest rate and start making overpayments on that card first.
You need to look carefully to understand if some of your cards are on 0% deals, and work out when the deal ends and what the interest rate is after that time. You might find, if you're near the end of a deal, that you could be better overpaying a 0% card to avoid being penalised when the deal ends.
4. Balance transfers
If your credit rating is still good enough to qualify for a 0% deal these can be useful, but what you should do is follow the advice above and use the 0% deal as way of reducing your debt quickly and with lower fees. Always check the small print.
Avoid the temptation to spend on the old card you've transferred away from. That's a very slippery slope. Cut it up and close it.
Compare 0% balance transfer credit cards
5. Full and final settlement
Will your creditors (the bank you owe money to) settle for less than the full amount? The simple answer is that your creditors might sometimes agree to settle a debt for less than you owe them, but never count on this as a way out of debt.
Full and final settlements are usually done when you come into some funds and want to make a one-off payment to get rid of the debt. Often these funds will come from a third party, such as a partner or family member.
Sometimes when you have a debt problem a creditor will write to you offering you a reduced deal. This is in the hope you'll ask around for money to clear what's outstanding.
The important thing to remember with full and final settlement is that you must get the offer in writing from the creditor. And once you have the offer in writing you must keep that letter safe. It's not unusual for creditors to attempt to chase the rest of the debt at a later date.
If you do have access to a lump sum it's worth contacting our settlement team for advice.
6. If you're really struggling
If you're really struggling – missing payments, getting creditor calls, "robbing Peter to pay Paul" – then you do need debt advice right now.
We've found from our clients that the quicker you face up to the problem the better. It often takes people over a year before they seek free debt advice; a year that'll include extra fees and charges that could be avoided quite easily.
There are solutions to any debt problem, and you can find one now by using our free confidential online Debt Remedy tool. Get debt help sooner for a happier 2014!