How To Manage Your Money And Get Out Of Debt
Make time for your money
The key to getting anything in order, be it your money, your friendships, your career, the key ingredient is time.
If you make time to keep an eye on your finances, you will find it easier to manage and be able to focus on getting good deals and budgeting accordingly to suit your income and expenditure.
Assess Your Finances: Past, Present and Future
Before you start shuffling receipts and tapping away on your calculator, you should write down a list of your life goals, financial goals and lifestyle needs. Note when you hope to achieve these goals by and what actions need to be taken in order to reach them. Also write down the costs required to reach those life and financial goals and what risks are involved.
Include home purchases, house moves, lifestyle purchases including holidays, new cars, and so on. Figure out where your priorities lie and should lie. If you know you need a good holiday each year, you need to save for that and budget for less savings or investment elsewhere. Cost up your lifestyle choices and necessary purchases before setting to work on giving your goals a realistic timeframe.
- When do you plan to go on your next holiday, buy your next home, retire, and so on?
- What are your current financial commitments and liabilities? What are your current living expenses?
- How much do you need to fund existing commitments, future commitments and listed purchases?
- Do you have enough money coming into your accounts at any given time to meet these commitments and afford these purchases? List any problem periods, where cash flow is not so good and list ways you will deal with that. How will bring in additional income to cover those periods?
- How much is left over once current commitments and living expenses have been accounted for?
- Are any assets available to be sold or refinanced?
- Are there any areas where expenditure can be reduced in order to save more to fund life goals?
Prioritise your debts
List your debts in order of priority. You can figure out where they fit on the list by considering the consequences if you stopped paying them. For example, if you stopped making mortgage payments, you could lose your home, making that a top priority debt, along with any other secured loans (loans where you have put something up as security against the loan). Ensuring you have gas, electricity and water are important too, as are feeding yourself and your family and being able to communicate via the telephone. Council tax and court fines are high up the list too, as both use bailiffs if you fail to pay.
Goods rented or hired can be repossessed, so priority of these debts depends on how much you need those goods.
Once you've positioned the higher priority debts on your list, you should also write down any 'non-priority debts. These will involve creditors who have no security against your home or goods, and are unable to repossess them. For example, credit and store cards, personal loans, catalogues, mail order, bank overdrafts and loans, doorstep collectors.
Making these lower priority does not mean you should not pay them, as failure to pay these can still land you in trouble and, at the very least will tarnish your credit file with possible CCJs, Termination and Default Notices. This is turn would lead to you finding it harder to get credit in the future.
Once you have your list of debts written out in order of priority, it's time to get in touch with those lower down the list who you cannot afford to pay as much as is currently required of you. Creditors will usually be prepared to negotiate as they'd rather get something than nothing. Creditors should only ask for a fair share of your spare income, so you'll need to show them what your spare income is.
Use the income and expenditure sheet here to figure that out.
If the situation is worse and you are in arrears with some of your priority creditors, you should contact those creditors asap to establish a fair and manageable repayment schedule based upon current repayment, plus a sum for arrears. Creditors would rather have regular payment, even if it is lower. For Council Tax arrears and utility bill arrears you may be able to agree a rate of repayment to cover what you owe to be added to your future monthly bills and spread the cost to reduce those monthly payments. The key is to communicate with your creditors so you can reach an agreement that suits both them and you.
Advice
Advice: How to stay out of Debt
Advice: Manage your Debt
Advice: How to manage your money and get out of debt
Advice: Saving and Borrowing
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