Five top tips for keeping your debts down

by admin on 15 October 2010

If you’re in debt and looking to stop those debts getting any bigger, organizing your finances is important. All too many people who find themselves struggling are doing so because they don’t take as much care of their money as they could.

But with a few simple steps, you could greatly reduce your chances of running into problems in the future. Here are a few of our top tips for keeping your finances in great condition.

Plan a budget

Budgeting is a great way of organising your money and ensuring that you don’t fall behind. To create a budget, simply note down all your regular monthly costs and take away the total from your monthly income. What’s left can be safely spent as you wish.

Once you’ve done that, it’s a good idea to arrange your accounts accordingly. One good way of doing this is to leave enough money for all your bills in your main bank account, and move your ‘spending money’ into a separate instant-access account. This is easier if you use online banking, because switching money between accounts online will be a lot quicker than going to your local branch.

Do a financial ‘spring clean’

If we’re honest, most of us would admit that we’re not fully up-to-date on our finances. Who really knows about everything that’s coming in and out of their accounts each month, without studying a few bank statements?

It pays to be aware of what’s going on with your finances, and cutting out anything that’s draining your bank balance unnecessarily. Things like gym memberships, TV packages and magazine subscriptions are nice to have – but they’re also things that a lot of us could ultimately do without.

So if you haven’t managed to drag yourself to the gym yet, or if you aren’t watching those TV channels you’re paying an arm and a leg for, do yourself a favour and save yourself some money.

Save, save, save

Saving should be a top priority for anyone concerned about financial security. Although it costs money that could be going towards your debts, as long as you’re comfortably meeting your existing debt repayments it’s a good idea to have some savings on the side just in case they’re needed, even though savings very rarely grow (due to interest) as fast as debts.

Savings could get you out of trouble if any unexpected costs come up, or if you find yourself unable to meet your essential costs for any other reason. Without savings, these things could land you in even more debt.

Get rid of unneeded credit

As silly as it sounds, some people’s debt worries are caused by the temptation that comes with having the credit in the first place. Let’s face it – if you suddenly ‘remembered’ you have a credit card with a £500 limit, who wouldn’t be at least a little tempted to spend it on something nice?

If you’re already in debt and looking to keep it down, cut up any credit cards you don’t need. It might be worth holding onto a small overdraft facility just in case you overstep the mark one month, but apart from that your focus should be on avoiding debt.

Pay off your most expensive debts first

This is an often-overlooked tip that could save you a lot of money in the long run. You may have heard of ‘order of payments’ in the news lately, because there has been some debate about the way credit card companies prioritise debt payments.

In short, paying off the debt with the highest interest rate first minimizes the overall amount of interest you pay.

So say you have four debts with interest rates of 18%, 10%, 7% and 6% respectively, you’d pay more towards the first one until it has been paid off, then start paying more towards the debt with 10% interest, and so on.

You will, of course, have to make sure you’re making at least the minimum repayments towards your other debts every month.

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