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How to start tackling your debt

Adam Gault via Getty Images

In association with Compare the Market

Staying on top of our finances can feel intimidating, but ignoring them could be worse: according to figures from The Money Charity, the average UK household has credit card debt of over £2000.

Citizens Advice estimates that 6 million adults in the UK have fallen behind on at least one household bill during the pandemic, whether that’s energy, broadband or water bills.

And this is before energy bill hikes could add £139 to household costs as we head into winter, and contend with the rising cost of petrol (at its highest since 2013), food (supermarket prices are up by as much as 5%) and even Christmas toys.

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While it can sound overwhelming, there are lots of sensible steps we can take to try and stay on top of our finances: the more in-depth our knowledge of our incomings and outgoings, the better our relationship with money can be. Once we get used to these budgeting and saving habits, we can change our relationship with money for the long-term.

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You don’t need to be in debt to give your finances a once-over: there are plenty of things you can avoid doing if you’re looking to stay out of debt, according to chartered financial planner, Makala Green.

She urges people to avoid “excessive spending (spending more than you earn and overusing credit cards) and using buy now pay later schemes - without a plan of how to pay in future. They can be tempting, but the financial consequences can be unattractive.” Fighting the urge to make impulse purchases is also important as it will affect your money management and your ability to pay off any outstanding bills.

It’s never too late to learn to budget

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Tracking your incomings and outgoings is the first step in figuring out your spending habits. Next up? Budgeting for expenses like household bills, luxuries and savings.

“Clear your overdraft and pay off any credit card balance monthly to avoid recurring charges and interest; create a future financial plan to help provide financial purpose,” advises Green. She also recommends trying to build an emergency fund of at least three months’ worth of living expenses so you’re covered for a rainy day - or new challenge.

If you’re worried about debt…

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Whether you’re concerned about pandemic-related debt or worry about paying off household bills this winter, the worst thing you can do - for your debt and your mental health - is to ignore it. Speak to someone about practical solutions and explain your situation to companies (perhaps you can stagger payments or organise a schedule that works with your current financial situation?). Coming up with a strategy of what to pay first can also be helpful. Cutting out any inessential spending is a straightforward first step as you concentrate on paying off your bills and any debts you owe.

Finding out where you can save is another thing to do: start with Compare the Market’s Good Things hub, which can help you take stock of your bills and utilities, as well as showing you ways you can save on household bills. You can compare broadband, energy and home insurance bills to see how they stack up against the neighbours’ outgoings, compare quotes on car insurance and broadband deals and get advice on mortgages.

Tackling debt: saving and switching

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According to Green, there are a few different strategies you can try when it comes to paying off a debt. She recommends exploring credit: use a credit report to understand your total debts and how they affect your financial standing – these can be accessed for free with certain apps and websites. Reduce high interest rates by switching to a lower-interest credit card to clear debt faster (see if you can find one that’s 0%).

Also: think about consolidating your credit card debts to a personal loan - the interest rate is likely better than that of credit cards, and a monthly payment can help you clear the debt by a set date.

“Some may prioritise financial goals over paying debts, and that's OK,” says Green. “Ideally, it's good to do both to maintain financial stability and not lose sight of financial goals. If this is not possible, I would suggest clearing debts first to fully focus on financial goals without being weighed down by debt.”

You can also check out credit cards and compare them without impacting your credit score using an eligibility tracker, which requires you to fill out some personal details to show you which credit cards you’re most likely to be accepted for (similar eligibility checkers for debt consolidation loans are also available), and they won’t impact your score.