Seven steps to fight your debts

Seven steps to fight your debts. Ignoring your cash woes could mean you fall into a downward debt spiral. Victoria Bischoff explains seven steps that will help you fight your way out of the red and back into the black.

If you've no idea how much you owe or are losing sleep over the size of your credit card bills, these seven simple steps should help you fight your way back to financial health.

Step 1: Face facts

At some point, it's probable we've all kicked unopened bank statements under the bed or shoved scary bills down the side of the sofa.

However, if you have a debt problem and ignore the evidence you'll only make it worse.

So, take the plunge and deal with your neglected piles of paperwork. The sooner you pull yourself out of debt denial and face facts, the sooner you can fix your finances.

Step 2: Write a budget

If you want to claw back control of your finances, you need to sit down and work out exactly where your money goes.

It's a good idea to create a simple spreadsheet detailing how much cash you have coming in and going out each month.

If your spending exceeds your income, you urgently need to investigate your spending habits. Keeping a spending diary for a month should help you track your outgoings and identify where you could make savings.

Step 3: Cut your costs

If you're paying expensive interest on your plastic, see if you can shift your debts onto a 0% balance transfer credit card.

These clever cards eliminate interest charges for a fixed period of time, helping you to destroy your debts much more quickly and cheaply. Right now, the Virgin Money Credit Card offers the market's longest 0% deal at 16 months.

If you don't think 16 months will be long enough for you to beat down your outstanding balances, it may be wise to opt for a long term, low rate deal instead.

You can learn more about these in Laura Starkey's useful article 'Why you should consider this credit card.'

In addition, it's worth trying to trim the cost of the everyday goods and services you have to pay for. If you can, you'll have more spare cash to throw at your debts.

If you've never switched your energy supplier or haven't done so recently, you could save up to £380 this year by comparing tariffs and taking your business elsewhere.

Also, it's important to make sure you aren't paying unnecessarily high insurance premiums. If you are due to renew an insurance policy or need to invest in new cover, shop around and compare prices as many companies will save their top deals for new customers.

Step 4: Prioritise your payments

Once you've made your existing debts as cheap as you can, arrange them in an order that will make repaying them as swift and affordable as possible.

Tackle your most expensive debts first. Look at the interest rates on what you owe and aim to pay off the balances with the highest interest rates as a priority.

This means paying the monthly minimum repayment (MMR) on debts that are cheaper (such as those you have managed to shift to a 0% balance transfer card). While paying the MMR is not usually something I'd recommend, in this situation it will allow you to throw every spare penny you can at your most expensive debt until it's been demolished.

Once you've achieved this, move on to the debt attracting the next-highest interest rate - then keep chipping at each debt successively until you've paid off everything you owe.

Concentrating on clearing one hurdle at time means you'll feel a sense of achievement each time you make it to the next stage in your payment plan.

A strategy like this will also help you reach your debt-free finish line much faster than if you only pay a little bit off each of your debts each month.

Step 5: Use your savings to squash your debt

In troubled times like these, many people find having a savings cushion to fall back on offers them valuable peace of mind.

However, if you have debts accruing interest, as a general rule of thumb it is smart to pay off this borrowing before you start to squirrel away cash.

This is because interest rate you're likely to be paying on debts is probably higher than the maximum you could earn on your savings.

Don't forget: if you empty your piggy bank to pay off pricey plastic and loans, you can always keep one credit card locked safely in a drawer to use in the event of an emergency.

Step 6: Ask about benefits

Check to see if you are entitled to any benefits or tax credits you are not claiming. The Directgov website should help with this.

It's also worth remembering to make use of the any company benefits you're entitled to before handing over your own hard earned cash.

If you need an eye test or want to attend a training scheme, find out if your employer will cover the cost for you.

Step 7: Seek professional advice

Finally, remember: always pay your priority debts first. Failing to meet payments on your mortgage, council tax, car insurance, television license or child maintenance obligations could result in serious action taken against you. You could lose your home, find yourself slapped with a serious fine or even face prosecution.

If you're unable to make even the minimum monthly repayments on your debts and can't see a way to make ends meet, you should seek professional help immediately. Independent organisations such as Citizens Advice, National Debtline and the Consumer Credit Counselling Service offer free guidance and advice.

Remember, filing for bankruptcy or an IVA could have a long term effect on your finances and seriously affect your credit rating. In my view, these options should only be considered after you have sought independent advice. ( mailcompare.mailonline.co.uk )