Have you found yourself struggling with debt for the first time? It can be a worrying time as you suddenly miss a payment on your credit card. After a month or two it can feel like you just cannot even begin to tackle the problem.
Overwhelming is the word that springs to mind for many and it’s all too tempting to stick your head in the sand.
But tackling debt is like finding a solution to any problem. While it can seem incredibly daunting, working through it step by step is what’s required.
Debt solutions like an IVA or a debt management plan may be required, but the first step is to assess exactly where you stand with your debts.
Measure your debt
The first step is to work out how much money you owe. Sounds simple, but often people forget to actually sit down with a calculator and figure out the precise amount of debt. Separate your secured debt like your mortgage from your unsecured debt – loans, credit cards etc. Really we just want the unsecured total.
You should now have a figure – it could be huge, but don’t let that daunt you as the actual total is not as important as the process of working out exactly how much you owe, which helps you to create a platform from which to work.
Now you have the total figure, you need to go through all your debts and find the exact amount you are repaying each month to service this debt. Include amounts that you may be missing – if you haven’t paid your credit card in three months make sure you add the minimum monthly due amount to your total.
This gives you a very accurate measure of the amount of cash you need each month to cover your existing debt after you’ve paid for living costs.
Work out living costs
First of all, you have your fixed living costs. This will include your rent or mortgage repayments (which is why we don’t include these in our debt repayment figure). Then add in your bills – council tax, electricity, water, gas, TV licence, phone, insurance payments and so on. Get as accurate a total for this as you can.
Next you need to work out your discretionary spend. This is key as usually people find that by cutting back on this part they can actually find more money to reduce their debt. You need to be as honest with yourself as possible here. Include everything from relative essentials like groceries and petrol to entertainment spending and other sundries.
Now you should have a good idea of where you stand. You have at least got a picture of your incomings and outgoings and can begin to see where you could reduce your spending in order to meet your debt repayments on time. Debt solutions may yet be required, but many will find they can actually cut it down and begin to pay off their debt by making cutbacks on their discretionary spend.