Get impartial, independent advice from leading debt charity, the CCCS, on how to take your second step to get out of debt.
While the UK is now no longer officially in recession, it may seem like scare-mongering to talk of rising levels of problem debt, bankruptcy and repossession.
There is however no doubt that times remain hard for many households, with steep rises in every day living costs such as food and utilities putting a big strain on finances.
In such a climate, it is imperative to make sure the pound in your pocket works harder and that household income is put to maximum use. The only way to do that is to budget.
- Adopt our goal: Draw up a budget
The very thought of budgeting makes most of us moan and groan, but to tackle your finances you first need to understand where your money goes.
Try writing down everything you buy over a month, to give yourself a clear idea of your regular spending. Alternatively, if that sounds like a hassle, you may find it easier to use lovemoney.com's brand new online banking service. This will categorise all your transactions from the last 30 days, so you can see at a glance exactly what you're spending your money on.
What difference does budgeting make?
Having a budget in black and white, listing the income you receive each month and all items you spend money on, is essential to put your situation in perspective. A budget will make it is easier to cut needless expense and make sure that you account for all your requirements.
With online banking, you can see all this at a glance, just by signing in using your existing lovemoney.com log-in.
Building a budget
CCCS recommends that you make sure all the figures in your budget are calculated monthly because most of your bills and debts require a calendar monthly payment. If you don't fancy adding this up yourself, lovemoney.com's online banking service does this for you, automatically.
First you need to work out your total income. Add together all the income you get each month, after any compulsory deductions for tax and such like. Make sure you include everything - for example, wages, benefits and pensions. Don't forget that some of your income might be paid monthly, weekly, or four-weekly. (Again, the online banking service does this for you, automatically.)
Next, make a list of everything you spend each month. Be sure to include credit card payments and one-off bills. The lovemoney.com online banking service could help you here, again, as it shows you all the transactions you've made using different bank accounts and credit cards.
Factor in transactions that aren't even there - for things that might go wrong, such as for car repairs and vets bills. Divide annual bills into twelve instalments and include the monthly figure in your budget so that you can set aside the money until your bill is due.
Finally deduct the total amount you spend each month from your monthly income. If you have money left over after you have paid for everything, you have a budget surplus. If you spend more money each month than you receive, you have a budget deficit.
What next?
If you are overspending, look at ways to maximise your income. Look also for areas where you can reduce costs by cutting out luxuries, and shop around for cheaper energy tariffs, credit cards, loans and mortgages:
- Adopt our goals: Make some extra money and Lower your household bills
Never scrimp on provisions for meeting priority expenditure, such as utilities, council tax, mortgage and rent payments, and secured loans.
- Adopt our goal: Prioritise your debts
If your budget shows you cannot meet your monthly credit commitments, contact your creditors immediately and get in touch with a free independent advice service such as CCCS.
CCCS's freephone helpline (0800 138 1111) is open 8am to 8pm Monday to Friday, while Debt Remedy online counselling is available twenty-four hours a day, seven days a week.
Get help from lovemoney.com: Destroy your debts
- Ask a question about debt on Q & A.
- Compare credit cards at lovemoney.com
- Log in to online banking