Holiday season is upon us. Many have plans for a staycation in the UK, and some will fly abroad to warmer weather as restrictions ease. However, getting away from it all and having a holiday is a fantasy for many of us; especially thinking of going abroad! Perhaps you are one of those who cannot think about a holiday because your sole concern is out to get out of debt.
Yet, that time to yourself is so important for your mental health. Even more so this year as it’s great to have a break from the house! Of course, there are many who have an uncertain future in their job or may even have lost their job and so do not have the choice.
One of the most important impacts on your mental health is your financial situation, so some have the double whammy of being in a difficult financial situation and not being able to go away for a break.
Even if your job isn’t in threat, being in financial difficulty affects how you feel on a daily basis, so make today the day that you are going to take control and start doing something to get out of debt.
Hi. I’m Anna Goodwin, your friendly finance mentor. With over 30 years of experience, I know how important it is to recognise you are in debt and do something about it.
Often, the hardest part of paying off your debts is making a start.
It’s easy to feel overwhelmed if you know you’re struggling financially. It’s tempting to bury your head in the sand and ignore your bank statements and demands for payment, but it won’t make the problem any better and could make it worse.
This is why I created my Mastering Personal Finances online course, which takes people through the steps to take control of their financial situation to get out of debt.
Step 1: Be honest with yourself
The first step to get out of debt is to recognise your predicament and decide to do something about it.
So, take a deep breath and open any letters you’ve been ignoring – this isn’t going to go away!
Once you’ve done this, at least you’ll know what you have to deal with and you can work out what you need to do next to get out of debt.
Your debt is a huge obstacle to reaching your financial goals as well as having an impact on your peace of mind, so make a plan to clear your debts.
Step 2: Plan of action
Now you have made a start, you are beginning to take control of your situation. The next step is to make a plan of action to get out of debt.
- Make minimum payments
- Pay one debt off at a time
- Once all debt is cleared, commit to staying out of debt
- Cut up your credit cards
- Plan for all expenditure
- Write down all of your debts
I know that’s seems a simplistic view, but it is that simple. It is just a case of making a plan and sticking to it. Do not spend more than you earn and take steps to improve your financial situation.
Keep following the steps and take action. You are in control. You can get yourself out of debt.
Step 3: Consider how you can accumulate extra cash:
Maybe you have items you can sell on eBay to give you extra cash.
A second job can help to clear debts.
Look for areas in your budget where you can cut spending to increase your debt payments too. If you have been working from home or furloughed recently, you will have noticed the difference because you won’t have been buying takeaway coffees or sandwiches or having to spend money on the commute. Remind yourself of those early days in lockdown when we were being especially thrifty with our shopping, using every last bit of the food bought and reducing waste. Now lockdown is being relaxed, it is easy to fall back into bad habits. You may be more motivated if you start making note of what you haven’t spent each day – it soon adds up!
Step 4: Review your household bills and mortgage
- For many of us, household bills make up a large chunk of our spending, so it’s important to take control of them. They may even have increased a bit with having to spend more time at home. Review the utility and phone payment amounts regularly, say every year.
- Don’t forget to review all your subscriptions as well e.g. Amazon Prime, Sky. You may even be able to negotiate a reduced price.
- You can also save hundreds and even thousands of pounds by shopping around for a new mortgage, or reviewing the one you already have.
Step 5: Pay off loans and credit cards
If you have loans or owe money on credit cards, it usually makes sense to pay off the debt that charges the highest rate of interest first. Possibly one of your credit agreements is offering a 0% transfer from the higher interest rates for a time, so you could get out of debt more quickly – do not use it as an excuse to spend more!
It is important to make sure you don’t break the terms of your agreements.
So even if you’re focusing on paying off another debt, you must pay at least the minimum on any credit cards and your monthly required payments on any loan agreements.
Once you get out of debt, you need to make a commitment to stay out of debt. Stop carrying your credit cards around with you, and save up an emergency fund to cover unexpected expenses so you do not need to turn to a credit card to cover them.
As we emerge from lockdown, why not take these steps to protect your mental health by tackling your debt situation. Take control and you will start to feel better – it may feel like an uphill struggle, but it’s worth continuing with it! Good luck!
Next week, I will concentrate on understanding your accounts.