When you’re struggling to pay interest on credit cards, loans or an overdraft – let alone paying off what you owe – it can seem like you’ll never get out of debt. Fortunately, there is a way out. If you follow these four easy steps, you can ditch the debt, and start living again.
- Step one: Draw up a budget
- Step two: Do the easy things first
- Step three: Make some extra money
- Step four: Save, save, save
Step 1: draw up a budget
The budget is the key to conquering your debts. You need to prepare a list of everything you spend, and everything you earn each month. Then you can tinker with each aspect of your budget until you have freed up enough money to repay your debts.
Getting this right means being specific and accurate. Get hold of past statements to work out exactly what you are spending on all your bills. Then keep a spending diary to assess what else you are spending your money on.
Don’t forget to include annual costs like insurance premiums, the MOT and your holiday, and break that down into a sum you can put aside each month to cover it.
Check out our essential articles on keeping a spending diary and how to do a budget.
Once you know what you are spending and earning, you’re likely to see why you have debts. The trick now is to tinker with the budget until you have brought your spending under the amount you are earning – with enough left over to pay off your debts.
Step two: do the easy things first
There’s a good chance you will need to cut your spending. Too many ‘helpful tips’ start with giving up all the things we enjoy: it’s no wonder so many people fall at the first hurdle. Your best first step to success is to do something easy.
The most rewarding place to start is by shopping around for everything from insurance to your gas and electricity, media, mobile, phone and broadband providers. You don’t have to give anything up at this stage, just switch to the cheapest provider (assuming your contract allows it), and you’ll save hundreds of pounds a year.
Change your insurer
If you’ve been with the same insurer for years, you are highly likely to be missing out, because the best deals are often only available to new customers. Switching should start with a quick comparison.
Cut the interest on your debt
If you are spending a fortune in interest, it makes it harder to repay your debts, so consider the best way to cut your interest payments. You could consider a credit card with an introductory period offering 0% interest. If you are unlikely to repay the debt before the 0% period runs out, you can switch to a long-term, low interest card instead. You can also consider a loan. However, if you switch your debt, the only way this will leave you better off is if you pledge to spend any money you save on interest on paying down the balance.
Change your energy supplier
It’s worth comparing deals regularly, as providers bring in new fixed rates or discounted rates on a regular basis. Your provider will send a bill listing any of their own deals that could be cheaper than the one you are currently on. Switching to this will bring your costs down a little, but taking the time to do a proper market comparison could save you hundreds of pounds a year.
Step three: Make a bit of cash on the side
Once you have done the easy things, before you start to make major sacrifices, consider the other side of the equation – and whether you can bring in more money each month.
Spare some space
If you’ve got a spare room, garage, driveway or garden, you can start earning a bit of extra cash by renting them out. Websites like Spareroom.co.uk will help you rent out a spare room, while a site like Airbnb will help you arrange short-term holiday rentals.
You can also rent out your driveway or garage if you’re not using it – this is especially useful if you live near a Tube or train station as it’s great for commuters. Take a look at JustPark where you can find driveways for rent or post your own. For full advice and details check out our special article on renting out your driveway.
For loads more ideas on renting things out take a look at this article.
If you don’t already, use cashback websites when you shop – have a browse at our article on the benefits of cashback sites.
When you shop through these sites you can get a percentage of everything you spend back in your account, saving the average user over £250 a year.
We like TopCashback and Quidco.
Mystery shopping is a fun way to earn some extra money while shopping, or testing services at local restaurants and pubs. Check out the opportunities in this mystery shopping article and sign up with one of the many mystery shopping agencies around. It’s not a complete list. The full list of genuine agencies can be found in our mystery shopping eBook.
Clear your clutter
It’s worth having a good clear out, and working out what people may be willing to pay for your unwanted items. You can separate your unwanted goods into things you can sell on online auctions, those you can take to a car boot sale, and those you can drop at a charity shop. You can even benefit from the items you donate, if you take them to Oxfam and ‘tag your bags’. You’ll be paid in Nectar points when your items sell, and Oxfam can get Gift Aid on your items too.
If you’ve got an old mobile phone (or two, or three) knocking about somewhere at home then dig it out and recycle it. Not only will you be helping the planet, you’ll make yourself some cash too.
As a general rule, the newer the phone the more money you’ll get – an iPhone can make you more than £200. Our comparison service will tell you which of the many recycling companies offers the most for your mobile.
Make money from a hobby or skill
If you’re good at something that other people can’t do (or don’t have time to do), you have a marketable skill. Whether that’s DIY, gardening, cleaning, walking the dog or babysitting, you could consider making a bit more cash in your spare time.
If that sounds like a lot of work, you can even get paid to sit around doing nothing. If you’re comfortable with nudity, you could make good money as a life model. Pay depends on where you are in the country, but you could earn between £8 and £10 an hour in big cities. Take a look at our article on how to make money as a life model for details of how to get started.
Get paid for your opinion
Online surveys are a great way to make some extra cash or store vouchers. There a couple of golden rules: never pay to join an online survey site, and set up a separate email account so your personal one doesn’t get flooded with spam, but other than that, it’s a handy way to make some extra cash. Online survey sites we like include Toluna and Inbox Pounds. For more information take a look at our article on online surveys.
For more tips take a look at this article which has 44 ideas for making extra money.
Step four: Save, save, save
Once you have done the easy saving, and boosted your income, you might have closed the gap in your budget, and freed up enough cash to pay off your debts. If not, it’s time to consider the sacrifices you are willing to make.
Cut down on luxuries
Go through your spending diary, and consider all the things you are forking out for each month. Then ask yourself whether you can live without them. Do you really need so many TV channels, the gym membership, subscriptions, nights out, or trips to the high street? Think carefully about what you can cut back on – and realistically sustain for the long term.
Save on food
With a bit of organisation, you can slash your food bill. For evening meals, you can buy fresh ingredients, cook in bulk, and freeze like a pro. Plan your meals for the week – and use your freezer as a plan B – and you’ll never throw food away or buy an emergency takeaway again. For lunch, you can save a small fortune by making a packed lunch and taking it into work with you.
In the supermarket, you should also think about ditching brands in favour of own-brand items, and don’t forget to check out the reduced sections, where you’ll often find packed lunch solutions at a knock-down price.
Look at our recipes section for more ways to save on food.
Get rid of your car
It’s a big lifestyle change, but you could save substantially if you sell your car and join a car club. A car club is essentially a pay-as-you-go car scheme which lets you pay for the car as and when you need it. Hourly rates are from around £5 and daily rates go up to about £50. Take a look at a street car club like Zipcar, or City Car Club and check their rates.
Reconsider your living arrangements
Housing is a huge cost for anyone, so if you still need to make big changes, then you cannot avoid at least considering this aspect of your budget. If you own a property with a spare room, you may have already decided to rent it out. If you are renting, you may need to reconsider the area, the size of the property, or how many people you are willing to share with. In every case, it’s a major change, but if you need to make a big difference to your spending, there’s no point tinkering around the edges and ignoring the priciest portion of your budget.
If you stick with these steps, you’ll be well on your way to paying off your debts in no time. If you need a helping hand through the process, it’s well worth signing up to our free MoneyMagpie debt action plan emails, which will help you get out of the red and into the black step by step.