The world is in staggering debt (so is the government). In August 2023, the average household in England owe £2000 on credit cards and £60,000 in overall debt. This is no time to feel guilty or ashamed. Being in debt just helps banks (huge profits for shareholders) and lawyers. Also read posts on giving up lotteries and gambling.
If you’re in debt, it’s not going to go away. Get a cup of tea (or large glass of wine), sit at the table and write down how much you owe and to who. Most companies prefer a token payment (it’s less hassle than taking you to court).
Download sample letters (also for business) to offer a payment plan. If no joy, then contact a debt charity (below).
The Multibank has branches nationwide that distribute donated goods to families in debt. You can donate clothes and shoes, unwanted toiletries, bedding and home furnishings, or businesses can donate production-line runs so people can buy or receive goods at the lowest price.
List All Your Debts
Create a detailed list of all your debts. Name the creditors, interest rates, minimum payments, and due dates. A spreadsheet or a simple handwritten sheet works well for this.
This exercise is like taking inventory before a sale. Once you know what you’re up against, you can plan effectively.
Calculate Your Monthly Income
Next, you’ll want to determine your net monthly income. This includes salaries, side gigs, rental income- everything. Subtract taxes, savings, and any automatic deductions. What’s left is your spending money. From this, you’ll allocate funds for debt repayment.
Create a Realistic Budget
Separate expenses into fixed and variable. Fixed expenses include rent, mortgage, insurance, and car payments. Variable expenses are groceries, dining out, and entertainment.
Set short-term goals like paying off small debts or saving £100 a month. Long-term goals could be paying off a loan in five years.
Choose a Debt Repayment Method
The Debt Snowball Method pays off smallest debts first, so you are motivated to see them disappear. Once the small debt is gone, roll that payment over to paying off the next smallest debt.
The Debt Avalanche Method focuses on debts with highest interest rates. This method saves you most money in interest payments. This tackles debts that cost more over time.
Pay off essential debts first (energy, water, council tax), and debts to family/friends. Don’t go near payday loans (most are banned). If you’ve got involved with loan sharks, contact a debt charity (below) for advice.
Bailiffs can only enter homes with permission and take goods to sell (TV, furniture, jewellery, cars). They can’t take pets, nor ‘things’ you need (washing machines, beds, cookers, vehicles with disabled badges and ‘home’ camper vans).
StepChange Debt Charity: Free Immediate Help
StepChange Debt Charity is a wonderful organisation, funded by industry to provide free help to anyone struggling with debt. Its trained advisors can give advice by phone and there is tons of free advice online. All help is impartial and confidential.
This charity helps hundreds of thousands of people each year. Just tell them your circumstances (don’t worry, they’ve heard it all), and they will then tailor a plan especially for you. Over 30 years, they have managed to help over 7 million people become debt-free, without paying debt consolidation agencies.
StepChange is registered with the Financial Conduct Authority, and does not make money from people it helps. All profits go back into the charity, to help more people.
The range of possible remedies (depending on your circumstances) include:
Debt Management Plan.
This is the main help offered, where your expenditures and income are gathered together, to create a plan that’s affordable yet can clear your debt over time. Your debts are handed over to them, and they create a flat monthly charge to come out of your account, and they take care of the rest.
Those you are in debt to contact StepChange, rather than you. In some circumstances, interest may even be frozen or cancelled.
Individual Voluntary Arrangements
This is where you pay a reduced rate over a fixed period of time. Once you’ve done this, remaining debt may be written off.
Debt Relief Orders
This is when debts are written off after a year, if you are on a low income with few assets. There are no fees to pay.
Debt Arrangement Scheme (Scotland only)
This is when you pay back only what you can afford. Trust deeds (also only in Scotland) are where you pay off debts over four years, and again remaining debt is written off.
Insolvency
If you are considering declaring yourself bankruptcy, contact StepChange that can provide free expert help and advice.
Equity Release
If you are considering releasing part of your home to free up capital, again StepChange can offer free impartial advice, to save you being ‘sold’ anything dodgy. And you can be made fully aware of the advantages and disadvantages/risks, before you make a decision.
Still in Trouble? Contact a Debt Charity
Rather than go to debt consolidation companies, Stepchange (a charity funded by sponsors) can sort your debts. Give them a call ((they’ve heard it all so if you’ve blown £100K on drugs, they won’t judge). Their experts will then come up with a remedy:
- Debt management plan is when they take over debts (often freezing interest) and you pay one monthly affordable payment until back in the black (creditors deal with them, not you).
- Debt relief orders (sometimes debts are written off, for low incomes).
- Debt respite (‘breathing space’) gives 60 days to stop paying, until you sort life out (especially if caused by illness, including mental health issues).
- Bankruptcy writes off debts. It’s an option to start over. You won’t get credit (but won’t need it, if you live simply). It’s rare for this information to be published in a local paper. It will be published in a creditor listing, which is really only looked at by businesses.
- Equity release is when companies part-buy your home (to inherit) then give money up-front. For people over 55, be careful as there are sharks around. StepChange has free impartial advice.
Other Trustworthy Debt Charities
- National Debtline runs a good website and phoneline. It has a fact sheet library ((self-employed people can visit Business Debtline).
- Debt Advice Foundation (be careful as others have similar names) is a non-profit with a good reputation.
- Christians Against Poverty (helps people of all faiths and none) can set up a plan to save and pay off debt. Churches can run their free budgeting courses (they also run job clubs to help write CVs and brush up on interview skills).
- Payplan is the non-profit arm of a for-profit company, to help with mortgage problems and negative equity.
Lifestyle Changes to Reduce Debt
- Cancel unwanted subscriptions to gyms, streaming services, magazines etc.
- Cooking at home saves money and is healthier. Plan meals and shop smart to maximise savings. You may even discover a passion for cooking.
- Don’t waste time on energy-comparison sites (listing costs are passed to you). It’s simpler to live simply, this will naturally reduce energy bills.
- Give up smoking and (cut down or give up) drinking alcohol.
- Go car-free or join a car-sharing club
- Train for a couple of years to do what you love (to earn more money for less hours).
- You could (if viable) downsize to a smaller place (a city flat could be swapped for a small home in a cheaper area). Or rent out a room (tax-free)
- If your family gets on, extended family homes are when relatives sell properties to share one. Say 3 people sell tiny flats to buy one larger garden property (for no mortgage or cheaper payments, with free baby/pet/granny sitting on top).
Books to Help You Get Out of Debt
Five Steps to Financial Wellbeing is a book to walk you through five simple steps to change your relationship with money, in order to make life better.
Money is not the most important thing on earth, but financial stability lets you live life in line with your values, rather than having to work any job, to stay above water.
It digs into building self-worth without buying things, avoiding debt and investing for the future. The author got out of £27,000 of debt, using the advice she now gives you:
- Overcoming your financial baggage
- Separating net worth from self worth
- Creating money habits and rituals
- Learning to spend mindfully
- Planning and preparing for the future
It’s perfectly possible to live a happy life without abundant wealth. And to live a miserable life with millions in the bank. But it is difficult to live a happy life, if you are locked in a constant battle with your finances.
Cancel Unused Direct Debits
Many people have thousands exiting their bank accounts each year, due to forgotten direct debits say for insurance or gym memberships. Look through at least the last three months to catch any that might not show up every month. Keep your list somewhere safe so you can update it as things change.
If you see a company name you don’t recognise, look it up or contact your bank straight away to make sure it’s not a scam.
Contact your bank directly, either through online banking, by phone or at a branch, and ask them to cancel the direct debit. This puts a stop to payments immediately.
Once you’ve cancelled the direct debit with your bank, let the company know. This helps avoid confusion or unexpected charges. Some companies will email you to confirm the cancellation, while others may need you to call or fill in an online form.
Books to Help You Get Out Of Debt
Get Good with Money is an American book that uses a simple 10-step process created by a former kindergarten teacher who lost her nest egg, when a recession (and encounter with a shady advisor) put her in a huge financial hole.
She used her teaching skills to pay it all off, buy a house and mandate into law financial education for schools in New Jersey. The 10 steps are:
- Build a budget
- Save like a squirrel
- Dig out of debt
- Score high credit
- Learn to earn
- Invest like an insider
- Get good with insurance
- Increase your net worth
- Pick your money team
- Leave a legacy
How to Get Out Of Debt is a 3-step process to get out of debt by a Canadian woman who cleared massive debt after becoming ‘tired of listening to middle-aged men in suits telling her to consolidate her debt – she got into more debt, and they got rich.
Most people who read her book are debt-free in 2 years. A judgement-free zone from cover-to-cover, download free budget plans and spreadsheets at Erin’s website.
Stay away from debt at all costs. Debt (not poverty) is the greatest energy of financial well-being and peace of mind. Debt causes us to mortgage our future for the present.
They will dress debt up in a suit, and call it credit. But it all comes down to the same thing. You will have mortgaged your future, to pay for your present. And that is something you never want to do. Kent Nerburn
