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The covid-19 has changed lives in many ways. Shocks like job losses and pay cuts have pushed many residents into a debt-ridden existence, and those already dealing with debt have been sucked deeper into the whirlpool. A recent report showed nearly half the people in the UK saw their salaries being cut last year.
Being in debt can spawn many problems—from changing the way we spend and live and affecting future goals to dealing with the stigma of being in debt. In a lot of cases, instead of facing up to the challenge and the changed life circumstance, people end up hiding their financial status to live a seemingly normal life. A recent research by debt management company Lowell showed that about 69% of Britons hide the status of their debt from family and friends. For the research, Lowell interviewed 658 of its customers.
This Debt Awareness Week, ending 28 March, we tell you five steps that can put you on the road to being debt-free.
Fight the stigma and take stock
It’s common to see that due to the fear of stigma around borrowings, people end up hiding facts not just from their family and friends but also from themselves.
The first step towards addressing debt is to face your fears and take stock of your borrowings, from credit cards and overdrafts to mortgages and loans. Make a comprehensive list specifying the amount due and the rate of interest.
This will help you recognise the need to budget and alter your lifestyle accordingly.
Budget your expenses
The fact that you don’t have enough to pay off your debts means that you urgently need to budget your expenses, whether it’s cutting down on expensive holidays and dinners or going for the latest brand of cellphone available in the market. The key to this is differentiating between your needs and wants.
Only spend on things that you really need, at least till the time you significantly reduce your debt. So, don’t get obsessed with brands and check your wardrobe before buying another shirt you like. Finding a good deal or repurposing things should be your mantra to maximise your savings and channel it into servicing your debt.
Look at income sources
Depending on the amount of debt you have, you may need to add to your income. First, assess if you are making use of all the government grants and benefits you are eligible for. Second, sift through your financial documents and make use of any amount you may have forgotten to withdraw from an old saving or investing account.
You could also look at your current investments and weigh the benefits against the dent your debt is making to your overall financial life.
Besides, it’s always a good idea to do that extra gig on the weekends to plug any shortfalls.
Have a debt management plan in place
Once you have put your expenses in order and figured out the ways to boost your income sources, get to handle the debt. Experts suggest paying off the loan or debt with the highest interest first and then moving on to the ones charging lower rates. For instance, settling a credit card debt first may be more advisable before settling a house mortgage. This strategy will help you save more, overall.
For some people, however, it is emotionally better to settle the lowest amount of debt first. This way, they get the mental assurance of having been able to close some of the loans.
If you think you can’t handle it on your own or are confused, never shy of seeking professional help. For example, National Debtline is one of the places where you can seek professional help in the UK.
Ensure you have emotional support
The road to getting out of a debt pool could be lonely. There may be phases when you will get demotivated and give up. At such times, having a confidante in a friend, family member, support group, or advisor may really help you go on. Having someone to support you in emotionally difficult times is equally important.
