In the run up to Christmas, it’s easy to brush aside debt worries. You've got presents to buy, dinner to shop for, and New Year’s drinks to get in.
But now, with 2017 just days away, it's time to face some facts.
If you’re in your overdraft, you’re in debt. If you've reached your overdraft limit, you’re on the verge of problem debt. And all your credit card bills are about to come back to haunt you.
The good news is, you CAN do something about it.
This is the perfect time to draw up your plan to get rid of your debts and end the year on the right side of the overdraft line.
Here are some steps to paying off your debts for good. But if you think you’ve already got more than you can handle, you can contact a free debt advice charity like StepChange or National Debtline . You may be able to arrange a debt management plan which makes life simpler.
1. Know your debts
It might not be as bad as you think. Start by identifying all your debts, including your overdraft. Find out how much you’re paying in interest or fees on each debt. This will help you prioritise what you pay off.
A quick way to do this is to take a look at your credit report. This lists who you owe what money to - and is used by lenders when they decide whether to not to offer you a rate or loan. Noddle and ClearScore both let you see your report free and offer tips to improving your rating.
2. Rethink your spending
If you’re going to sort out your debts, you’re going to have to focus on spending less and paying back more. So zero-in on the problem. Are you a big spender? If so, what EXACTLY are you spending the cash on? Has your income dropped? Or did you make one mistake and the fees spiralled out of control?
3. Draw up a budget
Go through your bank and card statements and identify what you could cut down on. Then start rethinking your spending habits.
4. Prioritise
Some debts are more dangerous than others. For example, if you fall behind on your mortgage, you could lose your home. If you don’t pay council tax, you could end up in jail. But if you don’t pay off store card debts, you can simply lose money or possessions.
5. Speak to lenders
If you’re behind on debt repayments, it’s worth speaking to the lender. For example, mortgage lenders are required to try to come to an agreement with you on a better way to repay your debt, such as extending your mortgage term.
6. Move your money
You might be able to move all your money to a 0% card, but that doesn't mean you're getting the best deal you can.
You can reduce your interest rate by switching your debts to a credit card with a lower rate, or even no interest for a set period of time. This is how to do it with an overdraft and with existing credit card debts. Just remember, this buys you time - it doesn’t cancel your debt.
You might also be better off taking out a personal loan at a lower rate than your cards and overdraft are at amd using that to clear your more expensive debts. Just ensure you are saving money and don't build up debts on your card or overdraft again once you've done this.
7. Consider snowballing
For some debtors, it makes sense to focus on paying down the debt with the highest interest rate first. This is called ‘snowballing’. You can find out whether it will save you any money using a calculator like this one.
8. Consider a debt management plan
If this is already too stressful, you may need some outside help. You can sign up to a debt management plan, where you pay a set amount each month. But be careful. You need to sign up with a plan you trust - NOT whoever calls you that day. This is what you need to watch out for.
9. Build up a safety net
Once you’re back in the black, keep on working to build up a financial cushion. This will give you breathing space if you get caught out again.
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