Jump Start Jan: Debt Week Day 3

We started with looking for danger signs your debt is becoming toxic, then we moved on to creating a full picture of what you owe.

Here’s the next step to driving down and deleting debt: taking action to prevent debts becoming worse. This step is essential and it needs to be carried out quickly. It can be done in two ways, depending upon affordability.

Have a look at your budget. What kind of monthly payments can you really afford on your debts? If you’ve missed any repayments, or you’re feeling financially overwhelmed and you think you’re about to start slipping, it’s time to write to your creditors and tell them that you’re having problems. The longer you leave it without communicating, the worse it gets.

However, if you show a willingness to communicate, an openness about your problems, and some goodwill, it can tip the balance in your favour. In particular, it tends to go down well with creditors if you can offer them a small regular repayment (even if it’s a nominal amount of £1 a month). In return, you may be able to negotiate with them to freeze the interest on the debt, or even write part of it off.

Citizens Advice has several sample letter templates for writing to creditors. They’re worth having a look at, and can be used for a range of circumstances. If you have several debts, prioritise the ones that have the highest interest charges, or anything that has a threat (court, bailiffs, eviction) or penalty (extra charges) associated.

If your budget allows you to meet larger regular repayments, try switching your borrowing to options with lower interest charges to make monthly repayments smaller. Watch out for extra expenses and balance transfer fees though, as these can potentially eat into any savings you might make.

For example, you may be able to switch a high interest credit card debt onto a low or zero interest credit card instead, hopefully with only a small balance transfer fee. Once you’ve managed this, cancel the original high interest credit card and cut it up. Don’t keep spending on the old card, and ideally don’t add any further borrowing to the new one either.

Also watch out for repayment plans that are spread out over many years as the effects of compound interest can cause issues in the longer term – if you can make bigger monthly payments then don’t be swayed by a ‘tiny monthly fee’ that you’ll end up paying over and over and over again. If possible, hit the debt as hard as you can and as soon as you can.

These options and actions will allow you to prevent small and medium sized debts from spiralling out of control. For larger debts and more difficult circumstances, contact one of the recommended debt charities for safe, reliable help and support.