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It seems it has never been easier to get yourself into debt. Debt is however a vicious circle for many, particularly when having children. I’ve helped lots of individuals with heavy debt. This post aims to share this advice wider, explaining the basics of financial management and how to plot your way out of debt, or at least to minimise the impact debt has on your life.

First and foremost, don’t panic; but don’t bury your head in the sand either! The mere fact that you are looking at this post shows that you are serious about getting control of your financial situation, and that means you have motivation and discipline.

Here’s a simple guide to help focus your thoughts:

Read around and document the key steps – There’s loads of financial advice out there. Don’t read this guide, or any other, alone. Read several others, and make sure you actually document the key steps you feel will help improve your situation most. This is YOUR financial plan to independence. Place it on your fridge, noticeboard or wall to make sure you are regularly reminded of your plan and focuses.

Document what you spend – Document everything. You have to understand any income you have, and expenses/outgoings in detail to take control of your debt. Some people choose to manage budgets within a spreadsheet, though I suspect many will find this tedious and soon give it up. Either way, you need to find a way of working out what you spend today. Look back over the last month at minimum and document everything you spent money on, grouping these into key areas e.g. “Grocery Shopping”, “Clothes”, “Nights out”. This includes everything… shopping, drinks in a coffee shop, a Mars bar in the office, charity donations, takeaways, mortgages etc…

Be realistic – don’t pretend to yourself that you “generally” only spend £10 a week on coffees if it’s really been £20 recently. This whole exercise is about giving yourself clear facts, so document the real figures you genuinely earn and spend.

Allow for unusual/infrequent expenses – Don’t forget replacement of tyres for the car, any house repair work, or charity giving that you like to do when friends want to be sponsored. For infrequent expenses, apply an appropriate proportion to your outgoings list (i.e. if you need 2 new tyres every 2 years, apply 1/12 of a tyre cost per month.

Document interest rates – For expenses where an interest rate applies, like a mortgage, or credit card debt, document the interest rate alongside the expense so you can see a clear picture of the rates available to you, and whether debt is in the best place available to you.

Document what you earn – Ensure you document your NET pay, i.e. after tax. You need to be thinking about the amount of cash that hits your bank balance in a month.

Compare the two lists you have created – what you earn vs what you spend – Hopefully you are earning more than you are spending. Either way, you now have a clear picture of your finances, and can start looking at where costs can be reduced.

Free up cash – cutback on costs
Take a long hard look at your expenses/outgoings. Can you do without any of these? or reduce these? You may be surprised how a small reduction in costs adds up over time. Interest of debt holds progress back, but therefore works in your favour as you reduce costs to pay it off (e.g. £100 paid off, saves the £100, but also the interest that would be payable on that £100 the next month (maybe £10); and saves the interest on the £10 the following month…).
Common targets:
1. Change the frequency of expenses – can your hair last another week between haircuts? Beware of doing this for safety items like new tyres.
2. Change shopping brands – Consider options to drop down the branding scale to a cheaper brand, or lower cost own-brand option. This doesn’t have to be forever, though I have to admit, I’ve personally remained on many own brand products having found some to be extremely good. This method can genuinely save £1000’s in a year!
3. Holiday locally – Do you go abroad for holidays? Consider staying with family for some family time, and a less expensive holiday? This doesn’t have to be forever, just save the odd holiday and you may have £100’s to payoff debts.

Relocate your debt
Review the interest rates you’re paying, and where your debt lies. It’s not uncommon at all to find that debt is in some of the worst interest rates available to that person (often credit cards). If you have a mortgage, you can look at options to take a “payment holiday”, so you can put that money to better use paying off other debts. Otherwise look at options available between your current debts, or even new credit cards. Some new credit cards offer 0% on “balance transfers” (transferred debts). Beware however that this is offered for a reason…. their interest rates will be very high once they kick in. To use these, you need to have a plan to payoff the debt before the interest rate kicks in. Also be careful not to use the card for daily spending, as balance transfer cards pay off the 0% debt first.

Prioritise debts
Now you’ve found the best layout for your debts, you need to prioritise paying them off. This means ensuring you’re paying off the most costly first, and that you are not breaking credit rules and risking court action/repossession. Ensure you know the order of debt payoffs, and the limit of each for a month.

Have a clear spending plan
I don’t personally recommend to have a spreadsheet showing how much you can spend on toothpaste this week, but DO ensure you know how much you can afford when going shopping, and challenge yourself to spend less, to place the rest against your debts for the month.

Remember…
1. Motivate yourself – it’s easy to lose motivation and go back to old habits… e.g. motivate yourself by ploting your planned debt reduction so you see your progress so far, and the how this further reduces your debt for the weeks, months and years to come.
2. Congratulate yourself – see what you are doing as a way to prove to yourself that you’ve got strong willpower. Acknowledge your achievements towards your goals to yourself, so you can feel great about reducing your costs. Coming out of a store with just the things you need, and in-budget is something to feel positive about.

I wish you all the very best in your journey to rid of your personal debt. I appreciate it is a tough challenge, but it’s worth it to have complete financial independence. You’re not alone so share what you learn works and doesn’t for you. Feel free to comment on this article if you feel there are other items that should be included.

All the best.