Simple Steps To Clear Your Debts

Banking and Borrowing

Updated on 16 December 2008 | 0 Comments

Our research reveals debts are taking far longer to repay than many of you expect, but there are simple steps you can take now to help free yourself from the burden.

So many of you think you can pay off your debts in just three years. OK maybe not your mortgage but everything else, right? We recently polled our Fool.co.uk readers and discovered that you're an optimistic lot. Our findings show that you have an average, non-mortgage debt of £11,000 which two thirds of you expect to clear in only three years' time. And a third of you are confident that your debts will be a thing of the past in just one year.

Apologies for being the bearer of bad news, but if you borrow £11,000, based on an interest rate of say 14%, it's likely to take you seven years and seven months before you can reduce the debt to zero. (That's assuming you repay at the average rate of 13.2% of your monthly salary.)

This is more than twice as long as many of you expect.

What's more, you'll be repaying around £167 for every £100 borrowed, meaning that many of you are struggling with the debts you've already accumulated. Our research revealed that almost one fifth (19%) of you with debts in excess of £20,000 are unable to make any repayments at all at present. And worryingly, a tenth of people over 58 years of age say they have debts which they can't get rid of.

The biggest problem is that many borrowers are simply not repaying enough to be debt free any time soon. Allocating only an eighth of your salary towards debt repayments is probably too low for most people.

But on a more encouraging note, many of you intend to save at least some if not all of the amount which would have been spent on repayments once you are debt free, and this is certainly a wise move.

While you're still in debt, here's The Fool's top tips to help you clear your burden sooner rather than later:

Fool.co.uk's Top Tips for Paying Off Debt

  • Budget carefully to identify where savings can be made

  • Switch your credit card debts to a 0% deal

  • Make more than the minimum monthly repayment. In fact pay off as much as you can afford

  • Pay off your high-interest debts first

  • Take a second job to supplement your income

  • Sell unwanted items to raise cash

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