Take control of your debt: Practical tips for a brighter financial future

Debt can be stressful and costly, especially with rising interest rates and increasing prices. Here are some impactful tips to help you manage and reduce your debt effectively.

1. Speak with someone you trust

Debt can feel overwhelming, but talking about it can make a big difference. Share your concerns with a trusted friend or relative. If that goes well, you could take a deeper look at your overall financial situation.

Alternatively, seek help from free services like Citizens Advice and MoneyHelper, which offer valuable guidance on dealing with debt.

2. Prioritise your debts

Organise your debts into three categories:

• Top priority debts: These include rent or mortgage arrears, secured loans, council tax arrears, and utility bills. Missing these payments can have serious consequences. Seek help from Citizens Advice or MoneyHelper to develop a repayment plan.

• Medium priority debts: These include credit cards, store cards, and unsecured loans. Focus on paying off the most expensive debts first while maintaining minimum payments on others.

• Low priority debts: These include government-backed student loans and mortgages. Maintain minimum payments on these while prioritising higher-interest debts.

3. Clear the most expensive debt first

List the interest rates on your credit or store cards. Pay off the card with the highest interest rate first, then move on to the next highest. This approach can reduce the overall interest you pay and help you clear your debt faster.

4. Consider using savings to pay off debt

If you have savings, consider using them to pay off high-interest debt. For example, if you have £1,000 in savings earning 4% interest but £1,000 in credit card debt at 20% interest, you're losing money. Using savings to reduce debt can save you money in the long run. However, ensure you can withdraw your savings without penalties.

5. Replace expensive debt with cheaper debt

Consolidate high-interest debt into a cheaper loan with a reputable bank or building society. Alternatively, transfer balances from expensive credit cards to ones with lower rates. Be mindful of transfer charges and interest-free period limits. Once cleared, avoid using high-interest cards again.

6. Clear your credit card balances each month

If you have a credit card, aim to clear the balance in full each month to avoid interest charges. If you can't, it might be time to create a budget and regain control of your finances.

7. Prepare for the unexpected

If you're debt-free, keep some cash for emergencies, ideally enough to cover three to six months of expenses. However, be aware that inflation can erode the value of cash over time.

8. Make a budget

Creating a budget doesn't have to be complicated. Use tools like MoneyHelper's online budget planner. A budget can help you understand your finances and control your spending. For example, cutting back on daily coffee purchases can save you a significant amount each month.

9. Create a financial plan

Once you have a budget, start planning. Key steps include creating a timeline, understanding your current financial situation, planning how to reach your goals, and regularly reviewing your progress.

Taking control of your debt can lead to a brighter financial future. By following these steps, you can reduce stress, save money, and work towards achieving your financial goals.