31 Tips to Help Pay Off Debt
Substantial debt can be a traumatic experience that impacts all areas of your life. Take a look at these tips and see if they can help you take back control. From paying less interest on credit cards to making some extra money.
Debt isn’t always a problem. Understanding the difference between good debt and bad debt is useful. If debt is left to spiral out of control then it has the potential to take over and destroy lives.
Problem debt vs Manageable debt
If your total debts (excluding the mortgage) add up to more that you earn in a year. If you are struggling to repay them. Or if you are borrowing on credit cards and repaying smaller and smaller amounts each month; then you may well have problem debt.
If you have debts that you pay off each month, that do not exceed your yearly earnings. Then you probably have managed debt.
This range of tips help keep debt under control. If you are facing problem debt and need help this page will help you take the action you need.
1. Find out where you stand.
It’s a tough first step to face up to any financial situation. BUT things will only start to change when you do.
Start by collating all the information and checking just how much you owe.
2. Get that budget sorted!
If you stick to it, a budget plan will help you make sure you don’t fritter away more than you earn and potentially help you work your way out of debt.
This budgeting for beginners guide is a great place to start.
3. Check your credit report for free
Regularly checking your credit report is key to understanding your financial health.
Credit reports are compiled by 3 main agencies in the UK. Experian, Equifax and TransUnion. Clear Score and Noddle give free access to your credit report. You can find more detailed information on credit reports here.
4. Improve your credit score
If you find your credit score is low then there are ways to improve it.
Check for mistakes and get them rectified. Register to vote. If you rent your home rather than pay a mortgage make sure your rental payments are tracked in your credit report.
5. Pay off debt first
It’s great to have a fincial cushion for emergencies, there is little logic in having savings and paying hundreds of pounds a month in credit card interest fees.
Interest rates on savings accounts are significantly lower than those charged on overdraft or credit card fees.
Using your savings to clear your borrowing could save you hundreds of pounds a year.
6. Check your tax code (you may have overpaid tax)
Make sure you check your tax code each year. If you are employed you can find the code on your payslip.
It’s possible you may have overpaid tax or should be on a different code. If you have multiple jobs, multiple sources of income or have changed jobs in this tax year be sure to check.
7. Marriage Tax Allowance
If you’re married, one of you is a basic-rate taxpayer and the other a non-taxpayer then you could be sitting on up to £900 of free cash from HMRC.
Marriage allowance, which has existed since April 2015, allows the lower earner in a couple to transfer a portion of their personal allowance to the higher earner. A claim can also be backdated.
8. Forgotten bank accounts or Premium Bonds
There are billions of pounds lying unclaimed in dormant bank and building society accounts, investments, pensions and life insurance policies.
If you think you may have lost a bank or savings account then there are free tracing schemes to help you recover lost money. Premium bonds gifted in childhood are worth a search, you may be in for a windfall! For investments, pensions and insurance policies you may have to pay a fee to search.
9. Sell unused clothes, toys and furniture
Root through your wardrobe for clothes you rarely wear or hunt down the toys your children or grandchildren have grown out of. As long as they’re in a reasonable condition, you may be able to make some money by selling them.
The best place to do so is eBay, but you could also try FaceBook groups, PreLoved, Gumtree, or Shpock.
10. Check if you had PPI
If you had any kind of credit product, such as a consumer loan, store card, credit card or mortgage up until 2006, when the regulator began imposing fines for PPI mis-selling, you may have been mis-sold PPI (payment protection insurance).
It’sfree and easy to make a claim (never be tempted to pay to claim) and you could be owed thousands of pounds.
The deadline for claims is August 2019 so you need to claim soon.
11. Switch your insurance to save hundreds
Remaining loyal to one insurer year after year will only hurt your pocket.
Insurance deals whether for the home, car, travel, or life insurance will be better for new customers.
Check about 1 month before the renewal date for the very best prices. Leaving it till the renewal date or a day or two before and the prices are usually higher.
12. Learn how to haggle
This may have less of an immediate impact but could go some way towards reducing your outgoings.
Haggling may not come naturally to most of us but applying some simple ideas could see you make big savings on household bills such as insurance, mobile phone contracts, broadband and energy.
13. Join Freecycle
If you need furniture or homeware but can’t afford it in your current budget then you may still be able to get it for free.
Websites like Freecycle or Freegle have searchable recycling communities (just enter your postcode to find your nearest) where people post ‘Offered’ and ‘Wanted’ adverts. While most will require you to collect, it can be a great place to pick up anything from armchairs to washing machines.
14. Drop a brand when grocery shopping.
One way to have a positive impact on debts is to cut down spending where you can in other areas of your life.
An easy way to do this is to ‘drop a brand’ when buying groceries. This doesn’t mean ditching your favourite supermarket (although it doesn’t hurt to try a ‘budget supermarket’ if there’s one local to you) but means choosing a lower level brand than you typically opt for.
If you usually buy branded products, then try supermarket own-brand. If own-brand is more your style, then give the value range a whirl.
15. Meal Plan
Grocery spending was a huge chunk of our budget. We made quick savings consistently by buying fruit and vegetables fresh from the market rather than supermarket. Trying out own brand alternatives, and meal planning.
I wasn’t keen at first, I want to eat what I fancy at the time not work it out a week ahead. But giving it a go means we only buy what we need, no more ending up with half a dozen of the same thing as I am not sure what we have in the cupboards!
16. Reduce your council tax payments.
If you’re paying council tax you may be able to reduce how much you pay.
For example, if you’re single, disabled, or on a low income, or a student there’s a host of council tax discounts available to you.
It’s possible to appeal your council tax if you believe the bill is wrong. Or believe that your home has been placed in the wrong council tax band.
17. Check your direct debits
This is easier with online banking as you won’t need to trawl through months and months of paperwork.
It’s entirely possible you’re paying for something that you’ve forgotten about such as an unused gym membership (aka a failed New Year’s Resolution), insurance for something you no longer own, or a paid TV subscription.
Make sure you know what the payment is for prior to cancelling!
18. Tax Credits
Are you eligible for tax credits? Tax credits are state benefits that provide extra money to people responsible for children, disabled workers and other workers on lower incomes.
There are two types of tax credits – child tax credits and working tax credits. Tax credits are tax-free and you don’t have to be paying National Insurance or tax to qualify, but they are means-tested. So, whether you qualify and how much you get depends on your household’s income and circumstances.
19. Are you claiming child benefit?
Child benefit is a payment made to you by the government if you are responsible for a child – and you don’t necessarily need to be the child’s parent. If you qualify for it, it could be worth more than £1,000 a year for your first child.
Your child needs to be either under 16 or under 20 and in an approved form of education or training (higher-education degrees, for example, are not approved). It’s only possible for one person to claim child benefit for a child.
20. Check if you can get pension credit
If you’re less well off, there is help available to you to boost your state pension. This comes in the form of pension credit.
Pension credit is awarded to you based on your earnings – known as a means-tested benefit – and tops up your basic state pension.
It’s worth claiming as if you’re eligible it’ll top up your weekly pension to £163 if you’re single or £248.80 if in a couple.
21. Reject increases in credit card APR
If your credit card company decides to increase your interest rate, it must contact you at least 30 days beforehand to give you time to decide what to do.
You should be given 60 days to reject the hike, cancel the card and pay back what you owe at the old rate. You won’t be able to use the card but it may stop the cycle of debt.
22. Minimum credit card repayments
The minimum repayment is the least you must pay back on your credit card each month to avoid a penalty. Of course, if you only ever pay the minimum it’ll take you far longer and cost you more to pay back what you owe.
It’s not always a bad thing to pay the minimum, especially if you’re struggling for cash in a particular month. However, if you make it a habit you’ll struggle to escape the debt trap.
If you only make the minimum payment on your credit card, not only could it take you years to repay the full balance. You may also be damaging your credit score as lenders may view this as you struggling to repay your debt
23. Switch to a 0% balance transfer credit card
If you’re paying interest on credit card debt, think about switching your balance to a 0% balance transfer deal. The best deals currently offer up to 32 months interest-free.
This is a great option IF you close the card that had the balance and make a plan to clear the 0% card in the interest free time frame.
Don’t wind up with two cards and two balances charging you interest.
24. Arrange an authorised overdraft
If you think you’re likely to go into an overdraft, or to exceed your existing overdraft limit; speak to your bank as soon as possible. They may be willing to increase your authorised overdraft.
Going into an unauthorised overdraft will trigger a whole host of extra charges and can be even more expensive than a payday loan.
25. Consolidating debts
A debt consolidation loan allows you to merge lots of different debts into one loan. Usually lowering your monthly repayments and meaning you owe a debt to just one lender.
However, if you’re having trouble managing your current debt repayments then consider that you might also have issues keeping up repayments on the new loan.
Always take free debt advice making a decision to take out one of these loans.
26. Beware of secured loans
A secured loan is one where the money you borrow is secured against an asset – typically your home. A mortgage is the most common example of this type of loan.
While a loan of this type is relatively easy to obtain (if you have a secured asset such as property to put up against it), and you can often borrow large amounts. You should be very wary as you can lose the asset if you can’t keep up with the repayments.
27. Avoid payday loans
A payday loan, is, as its name suggests, a small loan designed to tide you over until your next payday.
While it might be tempting to take out a payday loan if you’re desperate for cash, with a typical interest APR of 1,300%, it’s a very expensive option.
Speak to debt advisors who will help you understand the alternative options available to you.
28. Switch to a cheaper mortgage
Mortgages are secured debt – this means when you take out the loan to buy your home, you offer your property as security.
As a form of debt, they’re also much more of a long-term commitment. That doesn’t mean you need to stick with the same provider for the duration of the mortgage.
In fact, if you’re coming to the end of a fixed-term deal or you’re unhappy with the standard variable rate you’re paying then re-mortgaging could be a good way to lower your monthly repayments.
29. Talk to your lender
If you’re struggling with making repayments on any kind of borrowing, whether that’s a credit card or loans. Get help.
If you think you might default or miss a payment then the best thing to do is to contact your lender to explain the situation. They may be sympathetic and arrange an alternative repayment plan with you. They are trained to help, don’t let embarrassment hold you back.
30. Get FREE independent debt advice
There are many organisations and charities that offer free, impartial debt help and advice. Some advice may be face-to-face, some over the phone and some online.
If you can’t afford the repayments on existing debt, it’s better to get free independent advice. Don’t add to your debt by using fee-charging debt-management companies.
31. Take care of your mental health
Approximately one in four people in the UK will experience a mental health problem each year. Worrying about debt or money can exacerbate the problem.
The good news is there are steps you can take to improve the situation you’re in. Even if you currently feel unable to take even the tiniest of steps.
Mental health charity Mind has a wealth of useful information