Lots of us have debt. Making use of credit is nothing to be ashamed of but, if you borrow more than you can afford, it’s easy to get to a point where things feel difficult to manage.   If that’s the case for you, don’t be discouraged.  With our simple guide, getting out of debt might be easier than you think.

Debts can feel stressful, and even isolating. But as you start on your journey to becoming debt-free, it’s important to remember that you’re not alone. There is lots of help out there. The important thing is to not keep your worries to yourself. One of the best ways to get out of debt is to face your issue head-on and get help.

So, if you’re wondering how to become debt-free, grab a calming herbal tea and settle into our step-by-step guide on how to get out of debt. Let’s get into it!

How do I get out of debt? First, work out what you owe

Confronting your debts can feel daunting. But remember to back yourself — once you know the facts and have a full understanding of your situation, you’re going to become debt-free. Grab that stack of bank statements and bills you’ve been ignoring, open them up, and lay them all out in front of you. See? You’re already looking the problem straight in the eye.

Debt can often be made up by an accumulation of little things that have gathered over time, rather than a single issue. It can creep up on you. Before you can get to the bottom of it you’ll probably need to get a top-down view of your borrowing. Dig into your finances and ask yourself some questions:

• How much do you owe, in total? 
• Where do you owe money (credit cards, loans, mortgages, Buy Now Pay Later, etc.)?
• Are you using an overdraft on your bank account?
• What interest do you pay, and how much money is that per month?

Depending on your situation, this process might feel challenging. If your answers bring up feelings of worry, remember that understanding your situation properly will help you to identify the best way to move forward. Try to feel proud — you’re going to beat your debt, and you’re going to have to take control of it. 

Make a budget

When it comes to knowing how to get rid of debt, one of the first things you can do is make a simple budget. Budgets might make you think of politicians waving a little red briefcase, which isn’t a fun thought for many of us, but they can be pretty straightforward to create and they’re very powerful tools for conquering debts.

If you answered the questions in the previous section, you’ll have already been through your bank statements. Now, total up your monthly expenses. Make sure you include everything from rent and bills to takeaway coffees and streaming subscriptions. Categorise your outgoings into two lists: your essential and non-essential expenses.

Now work out your monthly income. Check your payslips and remember to include the income of everybody with responsibility for the debts. This is the basis of your budget. There are lots of different types of budgets, so you can find one that suits your situation the best, but we’ll focus on the 50/20/30 method. 

The 50/20/30 budget simply breaks down your monthly income into percentage chunks: 50% for your essential spending, 20% for your debt repayments, and 30% left over for your non-essential outgoings. Using this budget, you can find an affordable and sustainable way to pay yourself first and reach your financial goals.

Look at your current spending, do your essential and non-essential expenses fit into those percentages? If not, is there anything that you can do to cut back on your non-essential category to bring it down? Can you use comparison sites to squeeze your essential spending? 

It isn’t easy to cut back on spending but it’s important to be honest with yourself. Do you use all of your streaming services? Are you ordering lots of takeaways or grabbing too many coffees in expensive cafes? With the right determination, it is often possible to reduce your outgoings and free up 20% of your income for your debt repayments.

The other useful thing about this budget is that, because it is in percentages, it stays realistic even if your income goes up or down. Of course, you can always put more or less into your financial goals, but it gives you an affordable target. Dividing your total debt by 20% of your income will also give you a good timeline for becoming debt-free.

A great tip is to automate your repayments and pay yourself first. Set up Direct Debits so that your debt repayments come out of your bank on payday. That way you can hit your financial goals before you’re tempted to spend the money on anything else.

How to pay off debt fast by reducing interest

One of the biggest questions is how to get out of debt quickly. Nobody likes having repayments hanging over their heads. Unfortunately, it isn’t always easy to get clear of borrowing quickly. It can take patience and hard work. But one of the best ways to pay off debts faster is by reducing how much interest you have to pay.

Interest is the amount lenders charge you for borrowing money. If you leave a debt unpaid for a long period it can accumulate interest and ultimately become more difficult to pay off. That’s why it is important to not ignore your debts. Not only that, there are things that you can do to reduce or control the interest rates on your debt. 

1. Reduce your credit card interest

Credit cards often have high interest rates. That’s because they are usually used for smaller purchases over shorter periods of time. But because of the higher interest rates, debts on credit cards can quickly get  out of control. So what can you do if you have debt on a high-interest credit card?

One solution is to move your debt onto a new credit card with an introductory, interest-free period — this is called a balance transfer. By doing this you can focus on repaying the total that you owe, rather than chasing a growing debt. Note when the interest-free period ends, as you will likely be hit with high interest again after that date, and check for fees.

If you are not able to open a new credit card with an interest-free period, you may still be able to negotiate a lower interest rate with your current card issuer. This may be for a set amount of time, but in some cases, you might even be able to permanently lower it. If you don’t ask, you’ll never know, so give them a ring.

Top tip: Bear in mind that applying for lots of different credit offers in a short period could damage your credit score and make it harder for you to access credit. Try to be strategic about your applications: check your credit reports before you apply and try to leave at least six months between your applications. 

2. Look for lower-interest loans

It may be possible to reduce the amount of interest you’re paying on loans.  Speak to your loan provider and ask whether there are any opportunities to reduce the interest you’re being charged. If not, you could use a comparison website to search for loans at better rates. Be aware that your current provider might charge you fees for leaving your agreement early, but it may still be cheaper in the long run, so it’s worth checking.

Alternatively, it might make sense to consolidate your debts. That means taking out a new loan to pay off all of your debts and instead holding just one loan with more favourable terms. You might find that your repayments become easier to manage and you can shop around for better interest rates.

3. Consider remortgaging to save on repayments

If you have a mortgage, your payments can make up a large majority of your monthly expenses. If you can remortgage and get a more favourable interest rate, you could free up a considerable amount of money to put towards your debt repayments. This may depend on the mortgage agreement you currently have, so speak to your provider to check your options.

Remortgaging with your current provider can be a great option, because you’ll often be able to avoid any switching fees. But take a look at the cost benefits against any fees that you will have to pay. It could still be worth it in the long term.

Increase your debt repayments

It might seem obvious, but the best way to pay off debt is to, well… pay it off. And the more money you can put towards your debt repayments, the faster you will be able to clear the total. Not only that, but you will be able to fight against any rising interest payments. But of course, we can’t always afford to do this.

It’s important that you’re able to afford your essential expenses. Things like paying your rent or mortgage and bills, and having enough food to feed everybody, will always be the priority. It’s important not to miss any of these payments as that can increase your debt or lower your credit score, but also losing your quality of life can also drain your motivation.

However, if you can push your debt repayments above 20% of your monthly income, it’s something to think about. Consider saving round-ups on your spending. Many banks will automatically round up payments to the nearest pound and put the difference into a savings pot. Use this to boost your repayments. 

Another option is to look for ways to increase your income. Taking on a second job, if you have the spare time, or finding ways of making a passive income using your skills, can help to bring more money in each month. That can provide you with a means of paying off your debts faster, even if it is just a temporary measure.

Build your credit history

Your credit score is a numerical value that lets you know how creditworthy you appear to potential lenders. Having a great credit score can help you to get better borrowing options, for example, if you are looking to consolidate your loans or sign up for a more favourable credit card. But it can also help you to secure better interest rates.

If you are struggling to pay off your debts, you might benefit from improving your credit score. Fortunately, we have some great tools that can help you do just that. Get started with Loqbox and discover proven ways of growing your credit score fast. 

Improvements to your credit score are not guaranteed. 

How to get help paying off debt

If you’re looking for help getting out of debt, there is fantastic advice and some great options available on the government website or via Citizens Advice. Charities — including StepChange — can help you explore your options and find support. Beyond everything else, try to make a plan and stick with it. Determination is a superpower when it comes to paying off debts.