With 2013 already weeks old, you can be sure that plenty of resolutions have gone out of the window. But one change many of us should definitely look to make this year is a reduction in our debts. Slashing what we owe on credit and store cards, or in loans will free up money in the long-term and relieve a very common cause of stress.
Of course, if it was that easy to get your debt sorted there wouldn’t be thousands of people so deep in it across the UK. However, if you put your mind to it and work at it a bit at a time, it’s possible to make 2013 the year for clearing your debt for good.
Before we get started on how to clear your debt, there’s one thing you have to understand. There are two types of debt in the eyes of the law: priority and non-priority.
Priority debts include mortgage repayments, bills, taxes and court payments. If you do not pay these you can be taken to court and even imprisoned.
Credit card repayments, the paying back of benefits overpayments, parking tickets and student loans are all classed as non-priority debts. The Citizens’ Advice Bureau advises that you cannot be imprisoned for not repaying these provided you can give a reason as to why you can’t pay them.
How to get your debts in order
Once you have established which debts are priorities and which are not, it’s time to work out a budget. By establishing what you spend each month you can see how much is left over to spend on repaying debts.
By using a personal loan calculator you will also be able to tell whether switching loans would be a better option for you.
Personal loan calculators are a great way to get a good idea of how long you will be making repayments for, at a price you can manage monthly, based on the amount you borrow.
Although taking out another loan while you are in debt is not always the best idea as it can create a vicious cycle, paying back one loan over a guaranteed period of time for a fixed amount each month is surely better than managing multiple repayments at varying rates for an unknown length of time.
Once you have paid off your priority loans, either through careful money management or through taking out a personal loan, it is time to focus on non-priority debts.
With these it’s best to deal with them one at a time. Establish which of the non-priority debts has the biggest interest rate, or which can no longer be put on the backburner.
Once you’ve decided this, reschedule your budget to include the non-priorities, do a bit at a time.
By seeing your debts as individual issues rather than a massive problem it easy to compartmentalise and hence deal with the issues one by one.