ANY debt adviser will tell you there is no one-size fits all way of getting back into the black.
How much debt you can afford to repay and how frequently depends on your earnings and outgoings.
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It also hinges on your personality, whether you are a spender or saver and how easy you find it to stick to a plan.
But adopting a tried-and-tested method for tackling money that you owe can help keep you motivated and on the right track.
Here are some ways to clear your debts as quickly as possible.
The snowball
Most people owe money to several different companies, in the form of personal loans or credit cards, or through buy-now-pay-later.
If you can’t clear them all at once, it is important that you always prioritise putting any spare cash towards keeping on top of your priority bills and debts first – this is known as the snowball method.
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These include rent or mortgage, so you do not lose your home, council tax and heating bills.
Once those are paid, the snowball method suggests you focus your efforts on clearing your less intimidating debts first.
“List all of your debts from smallest to largest, not including any mortgage,” says Rachel Rowley, a financial adviser and financial coach.
“Then focus on paying off the smallest debt first, while making only minimum monthly payments on the others.”
This method is not the most cost effective, because interest on bigger debts accumulates, but it does keep you motivated.
“The idea is that starting small means you’ll find it easier to keep it up and you see progress quicker,” Rowley explains. “It’s probably the most popular method as a result”.
The avalanche
This will save you more money in interest than the snowball, but it can be less satisfying, so you need to dig deep to find the willpower to stick at it.
“You allocate enough money to make the minimum payment to each debt, then you pay any remaining money to the debt with the highest interest rate,” explains Rowley.
“Using this approach, once the debt with the highest interest rate is entirely paid off the extra repayment funds go toward the next highest interest-bearing loan.
“You continue this until all the debt is paid off.”
The hybrid
You could, of course, mix in a bit of both.
Try setting yourself a time frame to pay down some of your highest-interest debts, and once they are cleared, approach the rest of your debts with the snowball method.
Or, start by building a habit with the snowball and once you feel more confident and you are on a roll, shift to focusing all your spare money on any remaining, expensive debts.
Emotions first
As emotional human beings we all make money decisions based on how they make us feel, believes Emma Maslin, financial coach and therapist at themoneywhisperer.co.uk
“Many people find themselves in problem debt because of a particular experience or person, divorce is a good example, and this can leave them with strong feelings of anger or shame or guilt.”
Therefore, she suggests, paying off any debt that makes you angry or has another strong emotion attached to it first will help you sleep better at night.
“In my experience as a money coach, uncovering the emotions behind your finances is crucial in order for any practical steps to stick.”
Negotiation
Many people are afraid to talk about their debt, but “remember that you are not alone in this,” says Dennis Hussey, money adviser at National Debtline.
“Free, independent advice is available from charity-run services such as National Debtline. The earlier you seek free advice, the quicker and easier your problem will be to solve.”
Don’t be afraid to call the companies you owe to explain your financial situation and see if they will offer you a more manageable way to repay.
Many will suggest breathing space or reduce your interest with negotiation.
“When negotiating with creditors the most important thing is explaining your situation as clearly as possible,” says Hussey.
“Your budget is an important part of this as the more your creditors know, the better placed they will be to cooperate and work with you to find a solution.
“This includes mentioning things like health issues you may have.”
You can find letter templates for dealing with creditors on the National Debtline website at nationaldebtline.org.
Hussey says for a lot of callers these really make a difference. They gave you a script so you don’t have to worry about working out what to say to creditors, or how to say it.
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