09 March 2018

How to stay on track to pay off your debts

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The Christmas debt hangover can last longer than you thought it might, slowing you down on your way to your financial goals. You won't be feeling financially fit if you're worried about debt.

If you are feeling worried, you're not alone. Nationwide research reveals that one in four people don't expect to repay debt incurred over Christmas until May, while one in ten think it will take until December.

Last month, we advised breaking down your entire year's financial resolutions into monthly targets and short, simple steps. If February's finances turned out to be harder to manage than you expected, it's time to take a step back, re-evaluate your finances and come back stronger.

If you do nothing else in March make sure you:

  1. Prioritise your debt worries

  2. Plan how to reduce your debts

  3. Cut costs to reach savings goals

1. Prioritise your debt worries

Worrying about money is common and can seriously affect people's health, causing problems like insomnia, anxiety and even depression. This can make it even harder to tackle the money issues causing them in the first place. But you can overcome debt by following a plan of action.

First of all: prioritise your debts and tackle the most expensive ones first, or those with the most serious potential repercussions for non-payment.

Debt charity  (This link will open in a new window)StepChange advises people to prioritise repaying mortgages, rent and secured loans first, because the consequences of not paying could lead to the repossession of your home or eviction.

Other high priority debts include Council Tax, Child Maintenance, court fines, tax, VAT and National Insurance payments. Not paying these debts could lead to a visit from bailiffs, salary deduction or even imprisonment.

That's why they are a higher priority than, for instance, credit card debt. That doesn't mean your other debts aren't important – they are, because they can lower your credit score and interest is steadily increasing the debt, making it more difficult to repay.

Be honest about what's causing the debt. Try and work out what spending you can cut so you can establish a way of switching this income to tackle debt repayments.

2. Plan how to reduce your debts

Budgeting helps clarify how to tackle your debt. Add up your outgoings and what is left for debt repayment. Break up difficult tasks into manageable chunks by creating monthly goals and deadlines.

There are lots of ways you can do this. Work out a schedule of outgoings to ensure you have funds, don't miss payments and regularly check your balance. Use Nationwide's Banking App to help you. To limit unplanned spending, just draw out the cash you plan to spend. Take your credit card out of your wallet or give it to a trusted relative to avoid temptation.

3. Cut costs to reach savings goals

You can try and save by cutting costs. Scrimp on the simple things and only splurge on items you really want.

Think about ways to reduce household bills. If you're stuck on your energy supplier's standard variable rate, you could  (This link will open in a new window)save up to £300 a year by switching to a cheaper tariff. Many cheap broadband, phone and pay-tv services are only available to new customers, so switch and save.

Cut spending further by taking a packed lunch to work and your own coffee in a reusable mug. Link this to financial fitness by walking rather than driving when you can.

When your mortgage deal ends, negotiate a deal at a better rate. Check out money-saving sites for further ways to save on everything from supermarket shopping to days out.

You can use the money you save to build a savings habit. Follow our financial fitness guide month-by-month to get into a savings habit for 2018.

Help is available

If you're struggling with debt there is help available through voluntary organisations like  (This link will open in a new window)StepChange, the  (This link will open in a new window)Citizens Advice Bureau and the  (This link will open in a new window)Money Advice Service.

Check back next month for your FinFit must do's in April!

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