We find ourselves in the first month of 2015 looking out over eleven more months until the next festive season whacks us over the head. Looking back over the past couple of months we may be slightly dismayed at the wreckage that is our bank account, our credit card, or the payday loans that we have racked up. Christmas can be a costly exercise these days and experts say that the holiday season has pushed one in three UK citizens into debt this year. What can we do to clean up the mess?
The first and most important step to take in order to achieve good debt housekeeping is to set up a budget. Often the word ‘budget’ fills people with anxiety, but in actual fact it is really rather simple. All you need to do is get a piece of paper and make two columns. One for money that you have coming to your account, your income, and one for the money that you spend, your expenses. Your income can consist of payments like your wages, benefits, grants, or pension. Your expenses consist of things like your rent or mortgage, utility bills, school fees, insurance, tax, food and recreation. There are many online budget calculators offered by debt charities as well as building societies and banks, or you can record your budget on your computer or even with paper and pencil. Once you figure out how much you have coming in and how much is going out you then have a good idea of where your assets and your problems lie.
Firstly it is important to adjust your budget so that you are not spending more than you are earning. That s a surefire way to end up in debt. If you can’t cover your costs it is more than likely that you will be taking out loans, overdrafts, credit in the form of credit cards or store cards and in desperation short term high interest credit like payday loans. Needless to say it is extremely dangerous to take out credit that you know is impossible to pay back. This can quickly lead to a downward spiral of borrowing from Peter to pay Paul.
In order to adjust your budget so that your financial situation becomes a healthy one there are certain points to take into consideration.
- If your expenses outweigh your income be ruthless about cutting out unnecessary luxuries and expenses that you can easily do without. Stuff, like buying magazines at the supermarket or getting takeaways instead of cooking dinner can easily go.
- Keep a spending diary and record everything you spend during the month so that you can see where each penny goes. Often you spend money on silly things that you quickly forget about and then wonder where the money went.
- Make space for savings. Even if you save a miniscule amount each month, keep a savings account. You will want it in case of emergency.
- Make sure that you have space in your budget to pay off your debts. Pay off those debts that have the highest interest rates first. The goal is to become debt free so if you have to cut back for a while to achieve that goal it is well worth it.
- If you really cannot cope with your debt problems approach one of the many debt management charities before you take out more loans to pay off existing debt.
With all of this in mind remember that you are not alone. One in three people in the UK today has debt to contend with. You are part of a country that is, as a whole, trying hard to get back on its feet.