When you are in debt you need to first look at the interest rates that you are paying back on the debt to figure out which debts to pay off first. Remember that you must first make sure you pay your essential living expenses such as your mortgage, food, council tax and utility bills.
Generally I would pay off debts in this order (naturally, after you have paid your living costs)
1) Credit Card Debt – Credit cards generally have the highest interest charges so every month you should try to throw as much money at your credit card bills as you can afford.
Try to move the money using balance transfers on to ZERO percent interest rates if you can. This can save you a fortune in the long run.
2) Bank Loans (short term) – Short term bank loans are likely to be your 2nd highest debt so you should concentrate on this after credit cards
3) Bank Loans (long term) – Long term bank loans are likely to be your 3rd highest debt
You may not think you can afford to pay off your debts but you can.
Try to look at ways of reducing your spending.
For example you could follow these top ten tips:
- Move to a smaller house to reduce your mortgage or rent.
- Buy shopping in bulk in somewhere like Costco or go to discount stores such as Lidl or Pound Stretcher to reduce your food costs.
- Cut back on luxury items that you dont need – Take Aways, Alcohol, Cigarettes, Gym membership
- Rent out a room in your house to a lodger to generate tax free income
- Sell items you dont need anymore on Ebay
- Have a car boot every weekend to sell unwanted items for cash
- Keep a diary of how much you spend every week, every month so you can understand where you are spending money. Write down how much you have reduced your debts every month.
- Whenever you visit a shop make sure you have a list of what you are going to buy and ONLY buy what you have put on your list. Be strong.
- Take up a part time job to gain extra cash. Perhaps offer a service to people in your local area by posting flyers to houses in your area
- Update everyone on internet forums (such as here) how you are getting on with clearing your debts. Problems shared are problems halved. Also it allows you to gain tips from other people who have cleared their debts.
Follow these tips and you will be sure to clear your debt in no time.