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Have you ever needed to know how to get out of debt? Tumbling into a large amount of debt can be an extremely troubling experience that is felt across every part of your life. The specialists at Debt Consolidation Loans will help you to understand how you can get back on track with your finances, from looking at how you can lower your interest payments on credit cards to the measures you can put in place to help you.

Now is the time to be honest with yourself – has your debt become a problem? Do you need to know how to get out of debt? Most people have a certain level of debt in their lives, whether it’s a mortgage, a credit card of some sort or even an overdraft on their bank account. However, any debt should be easily managed. Working with a healthy debt in your life might mean you are able to own your own home or buy a car to get you to work, but it is important to pay attention to your debt. Debt that is not closely managed has the potential to consume your whole life.

Controlled debt or uncontrollable debt?

Before figuring out how to get out of debt, it’s important to understand the bigger picture of your debt. There are a few simple ways that you can assess how problematic your debt might be:

Total your debts (don’t include your mortgage). Does the total figure exceed what you earn in a year? If the total has come as a surprise, if you had overlooked some debts or if you’re finding it hard to repay your debts, your level of debt may well be out of your control.

Can you make the monthly payments on time and in full? If you know what each and every debt payment is for, and if the total is not more than your yearly income, you would appear to be managing your debt. This could change if you ever exceed the amount that you earn with the amount that you spend or take out lots of loans or credit cards to bridge the gap between your earning and your spending, then you could find your controlled debt becoming a problem debt quite quickly.

Debt that is taken care of, tracked and looked after and when you know exactly what you’re spending where and why, you are more likely to stay in control of your finances. If you ignore your debt, it is more likely to slip outside of your control. Our guide will show you how you can take charge of your situation and your debt.

How to get out of debt

1. Work out where you are with things

Looking at your finances can be difficult, but it is the best and only place to start. Make some time for yourself and set out a list of your debts. Include store cards, credit cards, loans, any overdrafts you are using and your mortgage debt. Work out how much you owe on each debt and how much you are paying towards that debt every month.

2. Make a budget and stem your outgoings

Any budget looks at what comes in and what goes out. A household budget looks at your earnings (what comes in) and checks out your spending (what goes out). This will show you – in black and white – where your money is going. You will be able to see where you can make tweaks in what you’re paying out, putting any money clawed back towards getting rid of your debts. You do need to stick to it, but your budget is one very clear way to help lead you out of debt.

3. Check your credit report – it’s free

Taking a few moments to check out your credit report is a really important way to you can understand your financial wellbeing. You can check for any mistakes on your credit record – it does happen. This is also your chance to see if anyone else has been using your details and making fraudulent applications in your name which could impact your ability to get credit. In the UK, credit reports are created and managed by three main credit reference agencies – they are Equifax, Experian and TransUnion (was Callcredit). While you may find your credit report hard to understand, there are companies that offer a simplified version that is easier to understand. Brands, like Noddle and Clear Score, set information out clearly and give you easy-to-understand information, which might be a number. This number is an indication of how likely lenders might be to lend to you in the future.

4. Make your credit score better

You might be happy with your credit score, or you may benefit from improving your score. There are ways to improve a score. These include amending any mistakes on your credit record, registering to vote on your local electoral register and including any rental payments are noted on your credit file. These are just a few ways to improve your score; there are other easy steps that you can take to increase your score.

5. Pay, don’t save

There are very few times in life when saving isn’t the best option. However, having a healthy savings pot while you’re struggling with debt doesn’t make sense. Redirect any excess funds that you have from a savings account to pay off an overdraft or a credit card debt. If you’re saving in an account that you can access quickly, you’re very unlikely to be earning much in interest – certainly not when compared to the interest rates you will be paying on a credit card. By using savings to pay off your debt, you could save a huge amount of money in interest charges, pay off your debt sooner and return to saving.

6. Avoid ‘setting off’

If you have both debt and savings with one financial provider, then the provider has the right to ‘set-off’ your savings to pay the debts that you hold with them, like a personal loan. While this may not happen very often, it can and does happen to some people – especially if you’re already struggling to make your payments. This could make your day-to-day financial management very tricky. One way to avoid this completely is to move your savings to another provider -it’s always easy to transfer savings than debt.

7. Look after your mental wellbeing

Around a quarter of Brits will experience poor mental health at least once a year. Worry and concern about debt and their financial health can make the matter worse. However, there are certain measures that you can put in place to improve your circumstances, even if you are finding it hard to face up to your financial reality. Mental health charities in the UK have a wealth of information on dealing with debt and mental wellbeing, while charities, including StepChange, offer helping in dealing with problem debt.

8. Give your tax code the once over

Check your tax code every year. If you are employed, you will be able to check the tax code as it is included on your payslip. The most common tax code is 1250L – that’s the basic tax code for the tax year 2020-21. You might be on a different code and have either over or underpaid tax. If you find you have been underpaid, you can look forward to a rebate, but, if you have underpaid, it’s better to know. HMRC will catch up with you eventually.

9. Get your money back from a forgotten bank account

We can leave money in certain places, forget all about it and they become dormant. These include building and bank society accounts, investments, pensions and even life insurance policies. If you think that you might have done exactly this, then you could use a free tracing scheme to reconnect you with your money. While bank and building society accounts might be free, investments, pensions and insurance policies may attract a search fee.

10. Get back your bank charges

If you are already struggling financially, then having a hefty bank charge applied for going over your overdraft limit is only going to make matters worse. If you think that your bank has been unduly harsh or that the charge was unfair, you might be able to make a claim to have it repaid to you. You might need to write directly to your bank. If they opt to reject your claim, you can try the Financial Ombudsman.

11. Check your PPI

While the deadline has passed for you to claim your PPI back, you might fit the bill for exceptional circumstances. The deadline for refunds for PPI mis-selling on credit products, including consumer loan, credit cards, store cards or mortgages up to 2006 was 31 August 2019. PPI is payment protection insurance and it was found to be often mis-sold. There are some companies out there who will offer to check for you – in exchange for a fee – but they are simply making money from people.

12. Discover negotiation

It might only have a slight impact, but any money that you can claw back into your household budget will be worth the effort. Negotiating includes asking a supplier for their best deal or pushing them to look for their best offer for a good customer. Many companies have ways of making the price work for everyone to secure your business. You can do this mobile phone contracts, broadband and energy providers.

13. Review your insurance

When it comes to insurance providers, loyalty means nothing and you are more likely to pay more the longer you stay with one insurer – unless you try negotiation (see above). Insurance deals are usually better for new customers, on home, car and travel policies, so it pays to shop around before your renewal date. This is also a good opportunity to make sure that you’re also not paying for insurance that you don’t need.

14. Find your local Food Bank

There is a lot of shame and stigma attached to the use of food banks but that is changing. While there will be a food bank in your area, you might need to get referred by a professional, like the Citizens Advice, your GP or a social worker. It can save a life so give it a go.

15. Go brand-blind

You could slash your weekly grocery bill by going blind to brands during your grocery shop. Supermarkets have come on leaps and bounds when it comes to putting their own name to a product. While it used to be about cost, now supermarket use cost, taste and quality to draw shoppers in with their own label products. This can shave tens of pounds off your shopping, with discount supermarkets offering low prices across most of the store.

16. Review Your DDs and Standing Orders

It can really pay to check your bank account – or accounts if you have more than one. You might have a few DDs (direct debits) or standing orders that you have set up and you have totally forgotten about. These are probably not for huge amounts, but you might be surprised at how easy it is to have a couple of active subscriptions on your account that you don’t use any more (could be a free trial that ended and has charged you anyway). Take an hour and review a full year of bank statements to make sure you understand every payment that has gone out. It’s easier than you might think to spot the ‘odd ones out’, especially if they go out regularly.

17. Council Tax payments reduction

Did you know that you might be eligible for a reduction on the amount of council tax that you pay? Local authorities have discounts that can be applied to your account if you have a disability, live alone or are on a low income. You can also query your council tax band if you believe your home has been allocated the wrong brand.

18. Energy Bill Assistance

There may be help out there with your energy bills if you are on a low income. Quite a few of the major utility providers do offer some form of assistance with energy bills. Providers, including Ovo, Eon, SSE, npower, Scottish Power and EDF do have a system off grants that they can give to their own customers who are in financial difficulty. Providers without grant schemes may be sympathetic to your predicament and work with you to make your payment plan more workable. It is always worth approaching The British Gas Energy Trust. The Trust will help anyone – not just British Gas customers – who are struggling with their energy bills.

19. Hardship help

This can be of help if you are already on benefits and wondering how to get out of debt. Hardship helps comes in the form of a loan to help you in the short term. These are small amounts of money – up to around £800 – that are paid back to the Government through deduction from your existing benefits. Your local council might also have hardship schemes on offer.

20. Shift your credit to a 0% balance transfer credit card

The Bank of England base rate might well be lower than ever before but that isn’t reflected in our credit card companies, which still sets an average APR of over 18%. If you have credit cards on which you are paying interest, you should consider moving your balance to a card with a 0% balance transfer credit card. This will allow you to concentrate any money that you pay back to the card on the outstanding balance, rather than interest charges. Please check to see if there is a set time limit or if the card is for the life of a balance.

21. Challenge increases in credit card APR

There are certain actions that trigger interest charges on your transactions. These include cash withdrawals from ATM machines using your credit card or if you don’t settle your credit card bill in full every month. Your credit card company can decide to increase the interest rate you’re paying. To do this, it must advise you of the changes at least 30 days beforehand so that you can decide what you are going to do. If you decide to reject the new interest rate, the card company must give you 60 days to cancel the card and settle the balance at the old rate of interest.

22. Make sure your overdraft is pre-authorised

If you think that you’re going to move into an overdraft or that it’s possible you will exceed your current authorised overdraft limit, it is important that you contact your bank as soon as possible. Your bank may be willing to authorise an overdraft or increase your existing overdraft. If you don’t have authorisation, an unauthorised overdraft can attract a huge number of added charges.

23. Try a 0% money transfer credit card

A money transfer credit card is a card that lets you move money from your credit card into your own bank or building society current account. It gives you access to cash that you can use to reduce or even clear your overdraft. Good money transfer credit card deals let you move your balance for a relatively low fee – around 3% – with the debt on the credit card remains interest-free for a set number of months. Please check the interest-free period.

24. Reduce your existing loan costs

You might be able to reduce your loan costs by moving your personal loan to a provider that charges smaller interest rates. It will pay to work out your figures before moving and to talk to your current provider to see if it is possible to make the move. Your current provider will probably ask for a ‘settlement figure’. This is typically the total of your outstanding debt to them as well as an early-payment settlement charge. Use this figure to decide if the options your considering for movement make it worth your while.

25. A personal loan to consolidate your debts?

A debt consolidation loan can be a useful way to address your debts. Debt consolidation loans let you combine lots of different loans into one loan amount that is paid back in one monthly payment to one lender, with one interest rate on a set date each month. A loan like this will normally lower your monthly repayments but, if you’re already having problems repaying your debt, you might also struggle to repay the new consolidated debt loan.

26. Be cautious of secured loans

Secured loans are when you borrow money against an asset, which is used as security. This is most usually a property and often a home. A mortgage is a secured loan. Secured loans can be easy to take out, especially if you have a property you can use as security, and it can generate large loan amounts but you must remember that your asset could be repossessed if you cannot keep up repayments.

27. Check out credit union personal loans

The UK has over 500 credit unions, which are financial providers that are both owned and controlled by their members. Credit unions often have personal loans of up to £3,000 with highly competitive interest rates. They also offer loans in smaller amounts. Credit union interest is based on the reducing balance, which means that the more often you can make repayments, the less interest you’ll pay in total. Credit union loans are usually cheaper than other loans, especially for smaller amounts, and do not have administration charges, set-up fees, or early redemption fees attached. Legally, credit unions can charge interest rates of no more than 3% a month, which is an APR of 42.6%.

28. Don’t take out a payday loan

Payday loans are loans – often quite small – that are only to be taken out for very short periods of time – to take you to your next pay day. These might look like the easy answer, especially if you find yourself really stuck for money, but these types of loans can have an APR of over 1000% – that’s 3 zeros! You should look to other options first. Try your local credit union, hardship options or speak to your bank about an authorised overdraft. If you have already taken out multiple payday loans, consolidating them will be your first port of call.

29. Move your mortgage

A secured debt, which uses your property as security when you take the mortgage out, mean that you are signing on the dotted line for many years – but this doesn’t mean that you have to stay with the same lender for the entire length of your mortgage period. There are good opportunities to switch providers to make sure you’re getting the best deal. You may be approaching the end of a fixed-term deal or you might be unhappy with your standard variable rate. Remortgaging to another provider could be a great way to reduce monthly repayments.

30. Work with your lender

Lenders don’t like surprises – like failure to repay – but they can be open to working with you if you are having trouble repaying what you owe. This includes any type of borrowing, from personal loans to credit cards. If you believe that you are about to miss a repayment or are about to default on your loan, make it a priority to get in touch with your lender and be upfront. It might seem like the hard thing to do, but they may be able to help you by sorting out a new, more manageable repayment plan for you.

31. Seek free independent debt advice

You are not alone – there are many different charities and organisations that are there to give you free -and impartial – help and advice on how to deal with your debts. You might be able to chat to them in person, over the phone or online. If you are struggling financially, please take the time to get free independent advice before you make a decision on how you are going to work things out.

Now that you have an understanding of how to get out of debt, with plenty of ideas to get you started, it’s time to regain financial freedom. Try them out, and contact us if a debt consolidation loan is the right choice for you.

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