Single Living Magazine

Get out of debt - now!

by Jasmine Birtles

But just because you are in good (or bad) company it doesn't mean that you can ignore the problem. In fact, when you are in debt, the worst thing you can do is ignore it because the longer a debt continues the more expensive it is.

So get out of debt! Do it now. Get rid of that credit card balance. It's costing you about 15% per annum, at least. And look at what you'd save - on a credit card balance of £2,500 - the UK average - it's costing you £375 per annum! That's money down the drain. Gone. Kaput. It is ex-money.

To some people, £375 may not seem a lot of money. They've obviously got too much for their own good. I hope they are giving some of their excess cash to charity. Think of it this way. If you lost your wallet or purse and it had £375 in it, would you be upset? I sure as hell would be.

No, if you are in debt the first thing you should do is face the situation. You need to get completely on top of your financial affairs. Get those bills out of the drawer, look at your credit card debt, get all your paperwork together and work out the hard figures. You need to know right now:

• How much do you earn, after tax?
• What are your essential outgoings?
• What's left?

If the "what's left?" is negative, you're being UNREALISTIC. Rein in your expenses. You are living above your means. See what you can do without and see if there are ways of earning more. Could you do some overtime? Could you cut down on eating out, buying clothes, expensive holidays? Remember, the quicker you pay your debts off the cheaper it will be so it's worth suffering in the short-term for the long-term gain.

Look at your debts. Which are the most expensive - probably your store cards if you have any. Put as much money as you can into paying those off while paying the minimum on the others. Once you have paid off your most expensive bills then go to the next expensive and the next until you have paid the whole lot off. You can get help from all sorts of websites such as The Motley Fool - www.fool.co.uk. This is an excellent website full of financial help and information. It also has loads of ideas on how to get out of debt as well as a very lively discussion board entitled 'Living Below Your Means'. Check it out.

By doing your own financial audit (just fill in the blanks in the table below), you'll know exactly where you stand financially. You can then start chipping away at your credit card bill. At the same time, if you rein in your expenses, you will find that outstanding credit card balance quickly diminishing. In no time, it will be zero, and you'll have regained your financial independence, and be ready to SAVE.

Should I pay someone to sort my debt out?

Ideally, no. There are over a hundred debt management companies around the country and they fall into two main categories: those that charge the debtor a fixed fee and those that deduct a percentage from an agreed settlement before handing cash on to the lender. You may have seen some of them advertise on daytime TV and in the tabloids. Most firms take around 15% plus VAT on each monthly payment, plus an upfront deposit. Some charge up to 25% commission. They operate by negotiating with your creditors on your behalf, aiming to reduce your monthly repayments by extending the term and/or reducing or removing interest charges on your debts. You then make one monthly payment which the company distributes (minus their commission), between your various creditors.

In all cases, though, the companies offer services that are already available for free from organisations such as National Debtline, local Citizen's Advice Bureaux - particularly their specialist Money Advice centres - and the Consumer Credit Counselling Service (CCCS), a charity funded by the credit industry. Not only that but there is some evidence that money paid to these companies does not always end up with creditors and that some do not work out which debts are priority and which can be ignored. Few of them bother about income maximisation, such as applying for state benefits, and generally they only offer solutions that involve money going through them, rather than tailoring advice to the customer's real needs.

It's really only worth paying for these kinds of services if you really are too frightened, or lazy, to deal with it yourself. Let's face it, if you are in debt, the last thing you want to do is add to your list of payments.

Get Out Of Debt Tips

• Calculate your net income each month including your wages and any other money coming in from benefits, investments or any other source. This will give you the total amount of money you have to spend each month.

• Write down all your essential expenses. Take the total amount from your income and what you have left is your real spending money.
  
• Have a look at your spending habits last month. Be honest! How much did you really spend on make-up? Did you eat out at Pizza Hut twice a week? Did you treat yourself to a manicure and pedicure? Did you buy yet another DVD? Once you have totalled up those expenses you can add both and see how it matches your income.

• Still some left-over from your income? Well done. You can put this into an easy-access building society account to help next month if you go over budget. Or, if you don't already have a regular, high-interest savings scheme, set one up and put this money into it. It's a good idea to invest at least 10 per cent of your income each month anyway.

• Spending more than you earn? Oh dear. Look at your essential expenses. Can you bring those down at all? Could you switch your mortgage to a better interest rate? Could you rent out an extra room or rent a cheaper flat? Could you walk to work instead of taking the bus, switch to a cheaper telephone provider or just make fewer phonecalls!

• Once you have brought down those expenses, take a good hard look at your other spending habits. We all have different interests and obsessions so decide what makes you really happy and what you wouldn't mind doing without and start saving on the things you don't mind sacrificing. For example, if you are spending on food at work, bring sandwiches. If you spend £1,000's on clothes each month, set a spending limit and keep to it by using your existing clothes more creatively, buying from markets and charity shops or even making your own. If you keep buying ornaments, books, CDs and the like set a strict monthly limit on that and make some extra cash by selling some that you have grown tired of at a second-hand shop or car-boot sale.

• If you smoke, stop now! There is no excuse. Do whatever it takes but give up the vile weed - if only to save £1,000's a year. Take a good, hard, honest look at your alcohol intake too. On average, people in this country drink far more than is healthy or safe so however much you think you drink, drink less!

• If you keep overspending, chances are that you need to take a more holistic approach to your spending habits. Ask yourself, why do I keep buying these things? Why do I need to go out every night and party? Is it because I'm trying to fill a gap in my life or run away from a problem? Do I keep buying clothes because I am miserable or feel inadequate? Quite often, overspending masks a deeper issue that needs to be faced and dealt with. Deal with this issue and the overspending will deal with itself. Easy? Well, perhaps not but for long-term help it's the only way to go.

Jasmine Birtles is a financial journalist and comedienne who has appeared on numerous radio and TV programmes.

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