HOW you tackle your debts, depends on how much you owe and who you need to repay.
Whether you’ve got a credit card or payday loan hanging over you, now is the time to get back on track.
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Whatever you do, remember you need to make your minimum repayments each month.
Jonathan Chesterman of Stepchange said: “Try to meet the minimum payment on every debt you have each month, to avoid default charges and the effect on your credit rating.
“After that, you should pay most towards the highest-cost borrowing – that’s the debt on which you’ll have to pay most interest and charges.
“If you don’t have enough to cover all this, that’s a clear indicator that you could benefit from debt advice.”
Jonathan points out that each year StepChange sees demand for its free and impartial debt advice leap by around 50% between December and January.
If you’re still struggling to make payments or if money worries are keeping you up at night, then the best thing to do is get free personalised advice from a debt charity.
Contact Citizens Advice, Stepchange or National Debtline.
They will come up with a plan to help you sort out your finances.
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You can also ask your existing creditors for some ‘breathing space’ in order to give you time to work out your plan.
Firms should allow you to freeze interest, fees and charges on debts, as well as pausing enforcement action and contact from creditors.
How to tackle your debts
Debt can creep up on you, and when it hits home how much you owe knowing how to respond isn’t always clear.
Start by writing down all your debts and necessary expenses, so you get a clear picture of your finances.
What you do next will depend on the type of debt you have.
How to pay off credit card debt
If you have credit card debts, focus on repaying the card that attracts the highest level of interest first.
Depending on your credit score, you may be able to transfer the balance on your credit cards to another one.
This could not only make it easier to manage your debt, but you might get a lower interest rate for an introductory period.
Use an eligibility checker, like MoneySavingExpert’s, to find out which card you could be accepted for, without damaging your credit score.
As with other types of debt, speak to all lenders if you’re struggling.
Each lender should work with you to reach a solution that sees you repay what you can manage, even if this means paying off what you owe over a longer term.
How to pay off a loan
If you have taken out a loan, typically this will be for a fixed period of a year or so.
Depending on the terms and conditions of the loan you should be able to overpay so that you can clear the debt earlier.
This is always worth considering if you can afford it, as it insulates you from problems further down the line.
If you find you are having problems making repayments, speak to your lender.
They may agree a repayment holiday, so you have a month or so to get yourself in better financial shape.
Alternatively, they may agree to freeze penalties and interest so what you owe is capped.
How to pay off an overdraft
Overdrafts can attract really high interest rates, especially if you dip over your authorised limit.
The first thing to do is stop using it if you can. This will mean reviewing your monthly budget.
Also, make sure you speak to your creditor, as they may agree to increase your authorised limit, so you pay a lower interest rate.
They may gradually reduce this limit in stages so you can get a grip on your finances.
It may also be possible to switch to a new overdraft provider, whose facility comes with a lower or no interest rate.
You could also look to pay off your overdraft with a loan that attracts a lower interest rate.
How to pay off a buy now, pay later purchase
Buy now, pay later agreements, and store cards for that matter, are handy when making pricy purchases. But you must be sure you can commit to the regular monthly repayments.
Always speak to the lender if you’re struggling and don’t have savings to help pay what you owe.
Lenders invariably have strategies in place that can help you. In fact, many will detail what help they can offer in the contract’s terms and conditions.
One option may be to offer to pay an ‘early settlement figure’ that’s below the total you owe, but is affordable.
Of course, you’d need to be sure you can honour any arrangement you agree on.
How to pay off a payday loan
The best way to repay a payday loan is to speak to the lender if you’re in difficulties, and try to arrange for a payment plan that is manageable.
Also, look to repay the loan through other means, including using a credit card or a bank loan.
Paying a loan with a loan might not seem sensible, but you should be able to clear the high interest payday loan quicker, leaving you owing less on your alternative form of credit.
If you are seriously in debt and have exhausted all options, take advice on whether to arrange a debt settlement or to file for bankruptcy
If you have more than one type of debt
Always try to prioritise the most expensive debt first and work our what you can realistically afford to repay, so that you stick to your plan.
Speak to a free debt advisor from Citizens Advice, Stepchange or National Debtline for help.
