Debt Defeater

How to Defeat Debt

Author: Sarah Modlock (?)

As a nation, our personal debts are at record levels. Research from Citizens Advice shows that one in five people who have loans and credit are using that credit to cover everyday household bills. Worryingly, more than a quarter of people with credit and loans have no idea how much they owe. Its a good idea to cut up your credit cards and consolidate all your loans into one. Find the loan that works for you.

 

Diagnosing debt

Look for the danger signs by asking yourself how many times you say yes to the following questions:

• Do you have more than two credit cards with constantly rising balances?
• Do you only pay the monthly minimum on each card?
• Do you have long-standing store-card debt (often at around 30% interest)?
• Do you borrow from one source to pay off another debt?
• Do you have trouble paying for essentials, eg your mortgage, bills, food etc?
• Do you find you run out money long before pay day every month?
• Do you regularly fail to make loan repayments?
• Do you regularly pay for food with credit cards?
• Are you facing legal action by lenders?
• Do you dread the arrival of the post and put off opening bills?
• Do you row with a partner over debts?

If you have two or more of these finance habits you could already be in danger of falling into the debt trap, or already be there. The following tips could help you avoid it or take the first steps to getting out of it.

Pay in cash

If you cannot truly trust yourself with plastic, then withdraw the amount of cash that you need instead. It is much harder to part with notes than hand over plastic and you will also get a much better sense of how much you are spending.

Check the smallprint

Read the small print before you sign up for any credit. Check the annual percentage rate on loans and financing.

Do not be seduced by the marketing. Watch out for credit card and loan companies advertising interest rates as low as 2.9%, but which climb to 18% or more after a short time.

Be wary of store cards

Signing up for credit in your favourite high street shop may be tempting, especially if you are given money off or a free gift. But it is one of the fastest ways to get into debt. Most store cards have extremely high rates of interest, so you could very quickly be paying more than 29% on outstanding balances.

Pay now, not later

Pay card bills before the due payment date. Unless they are paid in full each month, lenders charge interest from the date a transaction hits the account, so the longer debt remains on an account, the more interest you pay. The sooner a payment hits an account, the less you will pay in total. Paying the balance by direct debit will also help focus your mind.

Get out of debt

Stop spending straight away. Do not ignore the bills, however much you dread them - credit card statements and bills do not go away, they just continue to accumulate interest. Stay in touch with your creditors. Finance companies are willing to help if repayments become unaffordable, so long as you communicate with them.

Break the vicious circle of borrowing from one place or person to pay back another - get personal debt advice.

When you are debt free, make a new budget and stick to it.

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