HELP WITH DEBT

How to avoid further debt

HELP WITH DEBT

How to avoid further debt

Overview

Borrowing money to take important steps in your financial life is something many people feel at home with, but it’s important that you strike the right balance. Problems arise when people take on more debts than they can handle, and things can quickly spiral out of control.

In this guide, we’ll look at the issue of taking on too much debt, which debts to avoid, and where you can find support and debt solutions if you realise you need help managing your finances.

Why should you avoid debt?

First off, it’s important to say that taking on debt doesn’t necessarily mean you have a debt problem. A lot of financial products and services can be used in responsible ways, from taking on credit cards to improve your credit score, to borrowing money from a mortgage company to help you buy a new home.

Problems arise when you fail to pay priority debts. Priority debts are the debts that come with more serious consequences if you can’t settle the balance.

Failing to pay priority debts, like council tax or your mortgage, can lead to you suffering punishment in the form of bigger bills, fines, a frozen bank account, or even having creditors looking to repossess your home.

The best way to avoid further debt problems is to ensure you prioritise more important debts, deal with non-priority debts (like credit card debt) later, and take debt advice if you feel things are getting out of hand. First, though, you should do everything you can to try and live within your means.

How can I keep my spending in check?

Having a better understanding of your financial situation means having more control, but where do you begin when the time comes to crunch the numbers?

1. Make a budget

When it comes to putting a budget together, you have options. Your mobile banking app is a great place to start – and there’s plenty of clever tech available for free to help you budget, save and keep an eagle eye on where your money goes every month.

Or you could always go down the traditional route. The simplest way to manage your money is to sit down with your bank statement, a pen and a calculator to work out where you’re spending – and where you can cut back.

Stick to your budget

One of the simplest ways to keep an eye on spending is to make a budget, but it’s much easier to make one than it is to stick to it.

However you plan it, a well-considered budget is your ticket to financial stability. Whether you prefer to review your spending weekly or monthly, taking a moment to acknowledge all your outgoings will allow you to spend your disposable income more wisely and live within your means.

2. Be wary of taking on credit

Watch out for credit card debt

It can be all too easy to think of credit as a way of covering the cost of a luxury purchase or treat. Although one-off outlays may be manageable, thousands of people find themselves turning to plastic just to make ends meet every month.

Don’t take on too many credit cards at once

When you’re struggling to make your paycheck stretch, payday loans, overdrafts and credit cards can seem like an easy option to get you through. However, it’s important to remember that they’ll only add to your problems and can make the next month even harder to manage.

Monitor your credit card balance

If you’re facing financial distress, it can be hard not to see beyond the short term by turning to credit for support when the going gets tough. Take a step back and remind yourself that credit is just an additional cost you’ll have to cover later, especially when you include the interest that comes with it.

Will savings help me avoid money worries?

Absolutely. Saving can help you prepare for the unexpected – but it involves a bit of discipline. You have to be willing to forego a few of life’s little pleasures to safeguard your financial future.

Below are some tips on saving that can help you stay in control of your financial situation.

Save small amounts of money, more often

Studies show that the most effective savers are those who save small, affordable amounts every month rather than those who attempt to put away larger chunks of their disposable income. If you get into the habit of saving little and often, it’s surprising how quickly your money will grow.

Make sure you have an emergency fund

Savings are great, but you also need emergency savings. Think of your emergency savings as your umbrella for that unavoidable rainy day. Knowing that you have an emergency pot of money gives you peace of mind, and buys you a little time and breathing space if you ever have an issue that limits your income or seriously affects your outgoings.

Cut your expenses (especially the things you don’t use)

We all spend money on things we don’t need. Research shows that the majority of people who experience financial trouble are pay for products or services they don’t get any use out of. That might be:

  • A gym membership
  • Overly expensive mobile phone contracts
  • Subscriptions to streaming websites like Netflix and Amazon Prime
  • Music streaming service
  • Insurance policies (home, life, etc.) you don’t need

A successful saver is a person who takes a look at all of their expenses, and questions which they need and which they can live without. If you want to bulk up your bank balance, you need to look at all of your bills and expenses. If you discover things you don’t need, cut them.

How important is it to know where my money goes?

A recent study highlighted that more than half of adults aren’t aware of how many direct debits and standing orders they have coming out of their bank account each month. Across the country, billions of pounds are being wasted on direct debits for services that are no longer used.

From defunct gym memberships to lesser-used streaming subscriptions, ditch what you’re paying for if you’re not using it. This is where a well-planned budget can help highlight more frivolous or empty spending and encourage you to become more frugal.

What do I do if I’m already in debt?

If you’re living with debt the most important thing to remember is that you’re not alone. You’ve taken the first step by visiting the Carrington Dean website. Now we can get started with helping you find a debt solution that suits your situation.

As Scotland’s debt specialists, we understand that sometimes opening up about your finances isn’t easy, but we know for a fact that once you do, everything will change for the better.

How do I get out of debt if I have no money?

One of the biggest things that stops people dealing with their money problems on time is thinking there is no support available to them. If you’re struggling to pay your bills, your credit cards are maxed out, and you’re debts keep piling up, it’s difficult to see a way forward.

The good news is, there are always debt solutions available, even if you have already ran out of money.

Debt consolidation loans

Debt consolidation loans allow you to take on a new debt (a loan) and use it to pay off your existing debts. Let’s say you have multiple debts to different creditors – a mix of credit card debt, store cards, and payday loans. Instead of trying to manage all of those debt payments, a consolidation loan allows you to make a single payment to your loan, which will be divided between each lender.

Sequestration (Bankruptcy in Scotland)

Sequestration is the legal term for bankruptcy in Scotland. Sequestration suits those who have very little chance of repaying the credit/cash they owe. You will turn over your assets to the agreement (including your home if you have a mortgage) and may have to make regular payments towards debts.

Sequestration is considered a last resort, for people who have already exhausted all the ways they might be able to repay a company or creditor. The main advantage of sequestration is that you could be debt free after a year so long as you cooperate, and if you simply don’t have any money, you won’t be expected to contribute payments.

How do debt solutions impact my credit score?

Although they are often the best way for people to climb out of debt, all formal debt solutions will affect your credit score. They will be listed on peoples’ credit reports for six years from the day the arrangement began, which can make it more difficult for people to access credit in future.

Your credit report is a public document. You can check it yourself by using credit service websites, or via the three main credit reference agencies, Experian, TransUnion, and Equifax, of whom are regulated by the Financial Conduct Authority (FCA).

This public access means that, in theory, anybody could check your credit history and see that you have been using a debt solution. The good news is the only people likely to credit search you are creditors or future lenders, but this will make it more difficult for you to access credit until six years pass.

What if I need debt help or advice about priority debts?

No one likes to ask for help, and it’s uncomfortable to talk about money. That can make asking for debt help an incredibly difficult thing to do, even when you realise your debt problems are spiralling out of control.

At Carrington Dean, we understand debt, and the impact that it can have on peoples’ lives. Our team are friendly, approachable, and have the level of professional experience needed to help guide you down a better financial path.

If your debts are piling up and you’re not sure where to turn, you can talk to Carrington Dean. To speak with an expert debt adviser today, call us for free on 0800 043 1320.

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