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couple with bills receipts documents and laptop at homeDebt. Nobody likes to think about it, but it has a persistent presence in the lives of many. The general connotations derived from the word 'debt' are of someone that overspends and cannot budget properly. Yet debt can result from different situations, including emergency household repairs, divorce, student loans, and redundancy.

When faced with the reality of debt, you mustn't turn away and try to ignore its existence. Denial is never the answer.

Even if you have only built up a small amount of debt on a credit card, you still need to keep up with payments and prevent it from getting out of control. Of course, the task is made all the more challenging when you have to handle an excessive amount of debt - but it is still controllable when you take the right approach.

Are you ready to get back in control of your money? With this guide, we explain how to manage debt effectively so you can enjoy financial freedom in the future.

Gain a full picture of your debts

Before you do anything else, you must have a full understanding of your current debts. Not only do you need to know who you owe money to, but also the amount of money you owe.
This can be done by collating your debts into a list. When doing this, include the following information with each debt:

  • The creditor
  • Total debt amount
  • Current monthly payment rate
  • Interest rate
  • Due date

When you face up to your debts in this way, you can gain a full picture of the situation. It also ensures you remain completely aware of your financial position. Even if you only have one debt, you should still take the time to write it down with all the above details.
Once you have put together a list, don't forget about its existence. It would help if you continually went back to your debt list to remind yourself of your debts. Plus, when the debt amount changes - including the monthly payment rates - you have to update this on the list. Always have a pencil and rubber ready, or go that step further with dedicated software.

Speaking of which...

Use debt management software

Forget about using a pencil and paper or a spreadsheet. You can now utilise specialist debt management software to do the job.

There are various options available in that regard. You will find several debt management apps for either iOS or Android, all of which pack in multiple useful features and tools to tackle your financial woes head-on effectively. Plus, some of these apps can even be used free of charge.
One recommended option is to use a debt payoff planner. Don't let the dated interface put you off. This free app is ideal for manually adding your debts and selecting the best strategy to tackle them for your situation.

When you have an app on your smartphone, and the calendar is populated with up-to-date information about your debts, you can also receive helpful notifications to remind you to make your debt payments on time.

Ensure your bills are paid each month

You must always pay your bills on time. Whenever you make a late payment, this can be detrimental in more than one way.

For a start, you're going to receive a late fee for each payment you miss - which means you will have to pay even more on top of your debt. Secondly, it can have a negative impact on your credit score. Perhaps worst of all, if you fail to make a payment twice in a row, the interest rate on your debt can go up and cause your monthly bills to be even more expensive.

With the assistance of the right debt app on your smartphone, you should set alerts to remind you to make a payment several days before it is due. Never ignore it when this alert arrives. Make the payment straight away, assuming you have the money to do so.
If you accidentally miss the deadline to make a payment, don't feel you have to wait until the next due date to cover it. This could cause you even more problems than just those listed above. Once you realise your mistake of missing payment, rectify the issue as soon as possible.

Attempt to pay above the minimum

Whether you are paying off a credit card bill or covering your mortgage payments, it is always recommended to try and pay above the minimum payment threshold. When you simply stick with covering the minimum amount, you'll struggle to make any serious progress in eliminating your debt.

This is especially the case when it comes to credit card debt. Even if you are only £500 deep with your credit provider, this could take years to pay off if you stick to the minimum payment amount combined with high-interest rates.

As a result, always attempt to pay above the minimum when possible. Taking the £500 example from before, even including an additional £25 on top of the minimum monthly payment can make a significant difference and ensure the debt is paid much quicker. Plus, another incentive in doing this is the minimum amount will lower as you continually chip away at it with additional payments.

However, even if it barely makes any progress with wiping out your debt, always remember to make the minimum payment, at least if you can't afford anything more. As mentioned in the previous section, missing a payment can affect your account's standing and result in late fees.

Prioritise your debts

If you are dealing with multiple debts, you must organise these in terms of priority. Your main focus should be on clearing the bills which come attached with the highest rates of interest. After all, they cost you the most money that isn't being applied to lowering your debt total.

As is often the case, any credit card debt you have incurred will likely be at the top of the list. This is because they usually feature higher rates of interest when compared to other debts. With that said, certain payday loans and 'buy now, pay later' deals can offer interest rates that even dwarf the average credit card.

Another approach you can take is to pay off your debts in order of balance. This is where you zone in on debts with the lowest balance and clear these before moving onto the rest. By going this route, you can be quicker to reduce the number of responsibilities you have.

Plan out your expenses with a budget

You might earn enough money to cover your debts and other monthly expenses. However, do you have enough to take a sizeable chunk out of your debts each month? If not, it's time to take a closer look at your overall budget.

When doing this, you may not have to boost your incomings. Your main aim should be to reduce your expenses - and not just your debt. There are various ways to reduce not only your recurring bills but also eliminate certain costs. Here are some examples of how you can lower your expenditure each month:

  • Move to a Sim-only or pay as you go Sim card with your mobile phone.
  • Avoid takeaways, cafes, and restaurants, and focus on eating in.
  • Be more economical with your weekly supermarket shop. Plan out meals in advance and avoid expensive name brands.
  • Get rid of your cable or satellite package.
  • Cancel any subscriptions you don't use, including everything from Amazon Prime to a gym membership.
  • Cut out a materialistic viewpoint and only buy what you need or can afford.
  • Negotiate with your current providers for a better deal on utilities.

Not only can you free up more money by budgeting, but planning ahead also allows you to know exactly how much money is required to cover all of your monthly expenses. This way, there's no scary surprise when you're attempting to reduce your debt but forget to pay for something like your electric bill.

Build up an emergency fund

Yes, even though you are dealing with debt, you should still take the opportunity to build up an emergency fund on the side. While you might be able to manage your current debts to a large extent, how will this situation change if you're suddenly hit with a financial emergency? Something like an unexpected medical bill or a refrigerator breaking can throw even the best-planned financial strategies into the air.

With a nest egg on hand, you can avoid the potential of taking on even more debt and plunging into further financial difficulty. A good starting point is to build up an emergency fund of a £1,000. Yet don't settle at this amount once you've reached it - your goal should then shift to making the fund even bigger.

When you cannot put together an emergency fund, there are still choices available. For example, if you own a car, you can receive an emergency logbook loan from Car Cash Point. You still get to keep your vehicle, but you also get the money you require to cover your bills.