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How to manage debt

9 Steps to Managing Debts of any Size

9 steps to managing debts of any size

Everyone who has even a small amount of debt will have to find a way to manage this debt. You have to try to keep up your monthly repayments to make sure things do not get out of your control. If you have a much larger amount of debt, this requires a greater effort when repaying whilst also balancing different types and levels of debt you may or may not be currently repaying. Utility Saving Expert has put together the following guide to help managing debts of any size. Check out our 9 steps to managing debts of any size below:

Speak to a specialist money advisor for free advice and guidance today at Refresh Debt Services.

  1. How much do you owe and who is it owed to?
  2. Paying your monthly bills on time
  3. Create a calendar for monthly bill payments
  4. Make the minimum payment each month
  5. Prioritising which debts will be paid first
  6. Paying off collections and charges
  7. Create an emergency fund as a backup
  8. Plan your monthly expenses with a budget
  9. Recognise that you may need help


Step 1: How much do you owe and who is it owed to

First things first, make a list of all your debts. This should include who the creditor is, the amount of debt owed, monthly repayment amount, and what date it’s due by. It may be helpful to use a credit check service to confirm who the creditor is and what amount is owed. We recommend using a spreadsheet to do this, although a pen and paper will be just fine.

Once you have completed this, it will be much easier to see the big picture when you have this information in front of you. Don’t just create this list as a one-off. Remember to refer to this list regularly. As you are making repayments to any debts, remember to update the list accordingly to keep track of what’s remaining.


Step 2: Paying your monthly bills on time

By making a late payment, you will make it more difficult to repay any debt. This is because the creditor will likely apply additional fees and charges. If you consecutively miss two or more payments, the interest rate and/or financial charges will likely increase.

If you have access to a digital calendar on your smartphone or computer, it can be useful to enter this information in so you receive a reminder a few days before your next payment is due. In the event that you do miss a payment, do not wait until the following month, contact your creditor and pay as soon as you are able to do so, this can help you avoid being reported to a credit bureau organisation.


Step 3: Create a calendar for monthly bill payments

It can be useful to create a calendar for monthly bill repayments.

This will help you calculate which bill you should pay with each pay check you receive. Enter the bill payment amount alongside each date. Remember to include the date on which you are given your pay check. If you are paid on a different date each month, create a separate calendar for each month.


Step 4: Make the minimum payment each month

Make sure you are at least meeting the minimum repayment requirement each month if you are unable to pay any more than this.

If you are only making the minimum repayment, this doesn’t help you pay your debt with any real progress, however, it prevents your debt from increasing and your account won’t incur any additional fees and charges. If you miss payments, your account may end up in a default status and it can become much more difficult to catch up.


Step 5: Prioritising which debts will be paid first

Try to target which debts have the highest interest rates first, often, these will likely be credit cards. Prioritise which credit card has the highest interest rate as this will be costing you more. Use your debt list spreadsheet your created in step 1 to rank the order in which you want to repay each debt.

You can use a combination of different strategies such as paying the highest interest rate debts and those with the lowest outstanding balance first.


Step 6: Paying off collections and charges

When you have a limited amount of money that will be used for repaying a debt, try to put your efforts towards keeping any other accounts in good standing. Do not neglect any positive accounts for those of which you have previously defaulted on, as these will have likely affected your credit rating already.

Only target defaulted accounts when you can afford to do so. Remember, any account in default will likely be chased by your creditor or debt collection agencies until the account is brought up to date.


Step 7: Create an emergency fund as a backup

Once you feel that you are at a stage where you can comfortably manage any debts, it is of utmost importance to create some savings. Without any savings, you will have to go back into debt to cover the costs of any emergency or unexpected expenses.

Firstly, start small and slowly build up a small emergency fund, this doesn’t have to be the largest amount. £1,000 is a good amount to begin with and should suffice. It can be tempting to spend any savings you have built up over time, but remember that these additional funds can give you peace of mind and save you money in the future.

Secondly, once you have your initial emergency fund, set a goal to increase this over time. Ultimately, it can be very reassuring once you have built up six months of living expenses. Many financial experts believe that six months is what most people should aim for, although it can only benefit you if you go beyond this amount.


Step 8: Plan your monthly expenses with a budget

Having a monthly budget will ensure you have enough money to manage your income and expenditure correctly. Planning in advance is the key to managing your money correctly.

This will allow you to take the necessary steps if it looks like you’re going to be short of funds on any given month. A budget will allow you to allocate any disposable income correctly once you have covered your priority expenses. Any disposable income could go towards repaying debts faster or creating some savings as discussed in Step 7.


Step 9: Recognise that you may need help

If you are still finding it difficult to manage any debts on top of your monthly bills, it may be a good idea to speak to a specialist advisor. There are a number of charities and debt consolidation companies that can give you expert advice on what would be the most suitable solution going forward.

It is very important to remember that there are both advantages and disadvantages to any wider financial solution available, consider any option carefully before you make a decision.

For more information on personal finance, check out Utility Saving Expert’s blog.

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Utility Saving Expert’s Guide to Managing Money