Three hundred people were declared bankrupt or insolvent in the months March to May 2024. The average credit card debt is over £1,000 and would take over 26 years to pay off if only paid by the minimum amount each month.
Debt is a huge and growing problem thanks to the cost-of-living crisis, but there are things you can do about it. The MoneyMagpie team have come up with these steps to stop debt consuming your life.
Talk to Someone
Sharing your financial worries is the first step to tackling them. Talk it over with your partner, parent, or trusted friend. Many of us have experienced debt in our lives, but it’s not a subject many will discuss. Knowing someone else has been through it can be enough to give you the motivation to make a plan and end your debt.
Make a List of All Debts
List your credit card, overdraft, mortgage, rent arrears, utility and Council Tax arrears, and student loans or other loans if you have them.
Put them in a spreadsheet, in order of highest to lowest. In the next column, write down the minimum payment you have to make each month. This will help you visualise what you need to tackle and how much you need to repay. Don’t worry if the figure is out of your reach – keep reading for tips on how to face your debt.
Make a Household Budget
Go through your bank statements, credit card statements, and Paypal history for at least the last three months, ideally a year (to catch annual payments). This is a tedious task but it’s a valuable exercise in discovering where your money goes.
Write out the different types of payments – utilities, rent or mortgage, essential bills, groceries, entertainment, miscellaneous – and take a look at how much each costs per year.
It’s a huge number! Break this down by dividing by 12 to get a monthly picture of your outgoings.
Set this against your monthly income to see how much – if anything – you have spare. All of this spare cash should be going towards paying your debts. It is much better to overpay things like credit cards than only paying the minimum. So, look at which debt is the highest monthly amount as well as which has the largest interest rate. Pay more towards the one with the higher interest rate whenever you can.
Find Ways to Save
Doing a household budget will help you see where you can save. Could you cut back on your takeaways or eating out? Perhaps you don’t use your gym membership as much as you would like. Do you insist on buying the high-end pet food when the own-brand stuff would do?
One common budget-drain is subscriptions like streamers and Spotify. Think about how you could cut these down – by rotating a streamer each month, perhaps – and save money that way.
Shop for deals and discounts whenever you need to buy something, too. It takes a little more time and research but you could save hundreds of pounds a year when shopping around for things like car insurance, as well as small savings on the grocery and essentials shop each week.
Make the most of supermarket loyalty schemes, too. Tesco and Morrisons have loyalty schemes that offer lower prices for members as well as the chance to earn lots of points to spend on a future shop. Asda has a scheme which earns real cash, and Lidl offers incentives such as freebies and discounts every shop. These schemes are free to join and could save hundreds of pounds a year.
Speak to Your Lender
If you’re struggling to pay any bills right now because you don’t have an income or your debt has spiralled, talk to your lenders. Get on the phone to your mortgage lender and ask for a short payment holiday – even one or two months might be enough to pay off the rest of your debts, which could relieve the headache.
Ask for a payment freeze for a month or two while you try to find a solution, or for lower monthly payments. Most lenders would rather help you manage your debt than end up having to write it off if you declare bankruptcy, so you’ll find them receptive when it comes to arranging a plan with them.
Consider a Debt Management Plan
If you need to formalise your debt management arrangement, or can’t face talking to each lender because it’s a scary conversation to have, consider a debt management plan.
StepChange is a charity designed to help people get out of debt. They can manage your letters and correspondence for you, sending out letters to your lenders to arrange a payment plan.
You will probably start on a Token Payment Plan, often as little as £1 a month, to give you breathing space. Then, Stepchange take a payment from you each month and divide it out amongst your creditors.
Having someone take over the confusing admin of debt is a huge relief, and they’re specially trained to handle the difficulties of living in debt. Their helpline is 0800 138 1111 or you can access their resources online at any time.
Could a Debt Relief Order Be Right for You?
Debt Relief Orders are for people with debts below £50,000 and no assets (with a car value up to £4,000). You can apply for one if you have less than a certain amount after paying your bills each month – £75 in England and Wales, £50 in Northern Ireland.
Any debt within a DRO is written off after 12 months. In those first 12 months, your payments are frozen and people can’t chase you for payment. Your interest and charges will continue to accrue. If, after 12 months, your circumstances have not improved, the debts are written off.
This does stay on your credit record for six years, which makes things like opening a bank account or getting a new mobile phone contract difficult. It’s a form of bankruptcy, so it’s not to be taken lightly – but it can help people who don’t own their home and haven’t enough income to pay their debts.
Where to Find Help
There are always ways to manage debt. Some are serious, like bankruptcy, while others can help give you breathing space during tough times, like debt management plans. The important thing to remember is that you are not alone, and there is always something to be done about debt.
Debt can seriously impact your mental health, so as well as financial resources we’ve listed a few helplines if you’re struggling.
The Samaritans are available 24/7 to talk about any struggles you’re experiencing. Call on 116 123 or you can email jo@samaritans.org too.
The Mind support line is a safe space to discuss your mental health and is open 9am to 6pm on weekdays. Call 0300 102 1234.
The National Suicide Prevention Helpline UK is available on 0800 689 5652 from 6pm to midnight every day.
StepChange is available to provide debt advice and help you set up a debt plan that suits your circumstances. Call on 0800 138 111 or look on the website for resources.
National Debtline is a charity similar to StepChange able to help with debt advice and debt management. Call 0808 808 4000 between 9am – 8pm weekdays or 9.30am – 1pm Saturdays.
