21 Apr 5 Tips For Reducing Personal Debt
As of January 2015, the amount of personal debt in the UK totalled £1,469 trillion, suggesting that, as we continue to recover from the effects of the recent recession, more and more of us would benefit from additional resources that could help us to reduce the amount that we owe. Here are some ideas for reducing personal debt that could significantly improve financial status:
1. Budget Accordingly
A common problem is that, as a nation, we’re consistently living outside of our means by spending more than we have available to us. It’s easy to do, but a simple online budgeting tool can provide a clear and concise overview of financial resources, helping us to allocate funds more appropriately between different lifestyle categories, such as housing, groceries, and clothing. A better budgeting plan is the first step towards tackling month-on-month overspending, and towards reducing the amount of money we owe to debtors.
2. Prioritise Your Debts
Debts come in all shapes and sizes, and paying off one debt may have a more significant impact than paying off another. Debts should be prioritised based upon two separate factors – total amount owed, and interest rate. Clearing larger debts first can be beneficial, but it’s also important to focus on any loans that have particularly high interest rates, as this is essentially ‘wasted’ money. Around 5 percent of the 18 to 25 population in the UK have a very high interest ‘payday’ loan, which should be made a priority, as this kind of loan can have the biggest impact.
3. Use Prepaid Credit Cards
It’s reported that four in every 10 Brits rely exclusively upon credit available through credit cards to buy their weekly groceries, but this sort of reliance can promote overspending, especially amongst those with poor money management skills. When paying for groceries with ‘free’ money, it’s tempting to include little luxuries such as top brands – things that aren’t essential. Prepaid credit cards are rising in popularity, particularly amongst the younger generation, as they reduce the risk of overspending and encourage better spending habits in the long term.
4. Set Up a Debt Management Plan
It’s very easy to become overwhelmed by debt, especially if you owe a number of debtors, as repayments can become quite a complex process. 47 percent of us claim our health and wellbeing has suffered as the result of debt, suggesting a strong need for more reliable debt management plans. Professional, government-approved management services mean you only deal with a single contact who spreads your repayments across your lenders on your behalf, removing the stress, hassle, and anxiety that is often associated with owing large sums.
5. Pay off Debts with Savings
Saving up money in a high interest account is often considered to be a sensible financial decision, but it makes even more sense to pay off debts with existing savings first and foremost. Around 70 percent of people claim that they hold more in savings than they do on their credit cards, and yet fail to pay off their debts with the money that’s available to them. While it may feel comforting to know you have money to fall back on if times get hard, remember that for every loan you have, you’re paying interest. In the long term, it’s better to get rid of loans before accumulating savings.
Harry Price Lives in a small coastal village with his wife and 3 dogs. They all enjoy long walks by the sea, especially on a wet and windy day.