Whatever you want financially in 2016, it is going to be easier to achieve if you have less debt.
Do you want to buy a house this year or next? Do you want to clear the mortgage as soon as possible? Maybe you want to go traveling or get married. Are you thinking of starting a family and maternity leave? Or simply sick of handing over so much of your salary to the banks each month? Less debt means more freedom to do what you want.
Or does this sound wildly optimistic and you would gladly settle for paying off Xmas 2015 before Xmas 2016. Unsure you can pay your January credit card bill? Stressed by your job but feeling trapped by your debts? Losing sleep because you have no savings at all? Less debt means less worry.
“Clearing debt” is a New Year resolution that could make a huge difference to your life. If it’s broken down into chunks you are more likely to do more of them, so here is a suggested checklist:
Get the complete debt picture
- make a list of all your debts and find out the interest rate on them. The less you want to do this, the more important it is!
- try to reduce the interest you are paying – you will need a good credit rating for this so find out what yours is;
- read up about snowballing – the fast way to clear debts and end up with a great credit rating. Decide which debt to make your top priority;
- don’t use your credit cards at all for a month. Leave them at home and no shopping online unless you use a debit card, that includes using Paypal. This is the acid test to see how bad your debts are – if it’s impossible, you have to borrow more to meet expenses and debt repayments, then you need to look at your other debt options, see below.
Look hard at your expenditures
- keep a spending diary for a whole month;
- make a list of all your standing orders and direct debits. Decide if they are all needed and cancel any that aren’t – be ruthless, after 6 months or year of blitzing your debts you can always change your mind;
- if getting fit or losing weight is also on your resolutions list, find out how to do this on the cheap!
- what on this list of 88 ways to save money will work for you – could you aim to do a new one every month?
- look ahead at what your big expenses might be this year – when does your car have its MOT? Don’t forget new uniforms and shoes when the children go back to school;
- at the end of the month, bring this all together into a realistic budget. Your partner also has to agree on this!
- think about how you are going to track whether you are staying on budget.
- do you have a habit that is taking up too much of your money such as cigarettes or gambling? Quitting could be the best new years resolution you could make… See Is gambling wrecking your finances? for practical steps.
Other ways to improve your finances
- join a local credit union. Many people don’t pay any Council Tax in February or March, so these would be good months to start an emergency fund;
- explore ideas for increasing your income. They may not be easy, but could they dig you out of your current debt hole?
- if you have had debts for more than three or four years, look at whether you could reclaim any PPI – you may have been signed up for this automatically without realising. Or you may have wanted the PPI but it was still “mis-sold” as it would never have paid out;
- if you have fallen into the payday loan trap, see if you can get compensation – that link has sample letters to use.
You don’t have to do them all at once!
Do a few right away to kick-start your 2016 plans, then come back once a week and start another one. Why not print off the list and put numbers against then in the order you think matters most for you?
If one proves tricky, don’t give up, just move on. Slow and steady wins the debt race!
Does your debt situation feel impossible?
If you think you are past the point where you can hope to manage your debts, then you need to look at your other alternatives. Read what your options could be, so you feel a bit more in control, then decide who to talk to – make sure you get unbiased advice by going to one of the good guys on this list!