The best ways to get out of debt

Are you struggling with a debt mountain? Here are some top tips to help you win the battle.

The vast majority of us will be in debt at some stage in our lives. But if your debt is getting out of control, here are 10 tips that have worked particularly well for me as I fought to get back into the black.

1. "Set yourself goals"

Setting yourself a series of achievable debt targets - rather than viewing your finances as one huge mess - can help you feel more in control.

For example, at one point I decided to focus on whittling down my credit card debt by £50 a month. It didn't solve things immediately, but it did teach me to budget more efficiently, and gave me a big psychological boost when I hit my target.

2. "Knowledge is power"

The first step on the road to winning your debt battle is acknowledging just how big the problem is. It's not a pleasant experience, but you need to sit down and work out the following:

•         Exactly how much you owe, and to whom;

•         How often you need to make the repayments;

•         How long it will take to pay off each debt;

•         What the interest rates are.

When I was finally persuaded to do this, the cold hard figures gave me the kick up the behind I needed to actually address my situation.

This budgeting calculator from the FSA is great for working out exactly what your financial position is.

3. "Develop your own way of organising"

When it comes to organising your finances, one approach doesn't work for all. I know someone who's super-organised financially, but still works everything out using a pen and paper and storing papers in different-coloured folders.

I prefer to use an Excel spreadsheet - but I keep things fairly simple. Friends of mine, on the other hand, use hugely sophisticated computer programs entirely dedicated to financial management.

Whatever system you choose, if it suits your way of working, you're much more likely to stick with it.

4. "Chuck away the c**p!"

Leading on from the previous point, it really helps me to have a regular financial clear-out.

Many people prefer to keep old bank statements (and if you do throw yours out - remember to shred them first!). I'm talking about all the envelopes, promotional leaflets and other detritus that pile up around the important stuff.

When I've gotten rid of all that, I feel far more able to tackle my actual debts - and it's also much easier to find the paperwork I actually need!

5. "Attack the biggest APRs first"

Simply put, this means focus on the debts that charge the highest rate of interest.

There was a time, I'm ashamed to admit, when I couldn't have told you what interest rate I was paying on either of my credit cards. When I did bother to find out, I realised I could have saved a lot of money by paying them off in a different order.

Snowballing your debts (what I should have done) means you grapple with the ‘worst' debt first, throwing as much money as you can at it until it's cleared while making minimum payments on the others. Then tackle the next most expensive one, and so on.

 I could have saved myself a packet in interest payments if I'd done this - lesson learnt!

6. "Don't save whilst in debt"

Generally speaking, it's not a good idea to try and save money while you're in the red. This is because the interest you accrue will almost invariably not cover the interest you are paying on your debt.

While I was debt to the tune of several thousand pounds, I decided to set up a high-interest savings account with my bank.

I felt very virtuous putting a bit away every month, but in purely financial terms the few hundred pounds I saved would have been much better used to clear my credit card!

7. "Remember that the little things soon add up"

This can apply to those daily coffees, vending machine snacks, magazines or a whole host of other little ‘treats'.

At one stage, my downfall was definitely buying lunch when at work. Making a packed lunch for £1, rather than buying lunch for £6, can save you a whopping £115 a month (based on 23 working days). Find out more in Have a posh packed lunch on a budget.

If I'd paid that towards my credit cards I could have cleared them a whole lot quicker...

8. "Find out what help you're entitled to"

Millions of pounds worth of Government money go unclaimed each year because pensioners, parents and others in society don't claim the benefits they're entitled to.

But it's also worth remembering the benefits you have access to as an employee.

When I found I needed glasses, I groaned at the thought of finding that extra money at short notice. However, I was delighted to discover that my employer not only covered the cost of the eye test, but also contributed most of the money for the specs themselves.

Subsidised healthcare, training schemes and pension contributions are all valuable added extras which many employers provide -- so find out what you're entitled to before you spend your own hard-earned cash.

9. "Planning ahead saves money"

We can't plan everything in advance, but booking early can save you a lot of money and stop your debt mountain getting any bigger.

As a penniless student, I always booked trains and coaches as early as possible, and managed to get some extremely low fares as a result.

10. "Cutting costs vs. increasing income"

Finally, work out whether you'd be better off upping your income or reducing your outgoings.

If you're considering getting a second or better-paid job, remember that the tax man will grab even more money than usual as a result.

Because of this, it's worth making ‘tax-free', cost-cutting moves first - like cutting your household bills, cancelling ‘luxury' subscriptions and working to reduce your food bill.

Finally, if your debts are seriously spiralling out of control, don't forget there are plenty of free independent debt advisory services such as Citizens Advice, National Debtline, the Consumer Credit Counselling Service, Payplan and Advice UK who will be able to provide guidance on a range of options to help you sort out your debt problems, and you won't have to pay anything for this advice.

Good luck!

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