5 Ways You Can Reduce Debt
Feb 10, 2022 ● 7 min
1. Find the right debt solution
There are various schemes available for those in debt and some involve your debts being reduced – even written off. Below is a brief list of some of the most common solutions available in the UK.
IVAs or Trust Deeds
These types of solutions involve your creditors freezing interest and charges which ultimately helps reduce your total debt level. Whilst these do have a negative impact on your credit rating, the remainder of your debt is written off after 5 years of you keeping up repayments and you can continue with a clean slate financially.
Take a look at our online IVA Calculator tool for an idea of how much debt you can write off with an Individual Voluntary Arrangement.
Debt Management Plan
This is another way you may be able to reduce your debt as you make affordable payments to your creditors. Whilst they may agree to a reasonable payment plan, there is no guarantee that they will agree to reduce the overall amount you owe.
Bankruptcy and Debt Relief Orders
These solutions see your debt written off after a certain amount of time. Whilst this seems like a reasonable way to get out of debt quick, these aren’t suitable for everyone due to the qualifying criteria or lifestyle implications that are involved.
If you’d like to know more about what solutions might work for you to help reduce debt, we go into greater detail on available debt solutions on our website.
2. Create a Budget
A budget is a great way to help get on top of your debts, as you can understand exactly what you have coming in and going out which can put yourself much more in control of your finances. A successful budget can be achieved by looking through previous bank statements and other financial documents that reflect your spending and income.
You can then understand whether you can cut costs in some areas in order to contribute more towards your existing debts. Even if it’s only a few pounds here and there, by doing so you’ll be able to reduce your debts quicker than before.
We offer further advice on creating a budget on our website, and with a quick search online you will be able to find various budgeting templates that may be of use to get started.
3. Increase payments
This seems obvious and not everybody has extra cash to pay more than they are already. But, did you know that if you are only making ‘minimum payments’ to your lenders then you are at risk of falling into what’s called ‘persistent debt.’
Essentially, these payments will only be covering the interest that is being added by your creditors, so your actual debt level remains the same.
By increasing your monthly payments slightly to stretch beyond the minimum payments required from your creditor, you will be able to contribute to your actual loan, not just the interest and other charges – so over time, you will gradually begin to see your debt reduce.
4. Speak to your creditors
Each company will have their own policy for consumers to query whether they can have their debts reduced. Whilst it isn’t guaranteed that they will agree to reduce or write any of your debt off for you, it could be beneficial to reach out and talk with them directly. If you are really struggling to keep up with your payments, it’s much better to inform your creditors about this than to remain silent or ignore them.
This option may be ideal for those who are only dealing with a few debts, but if you are facing a lot of debt from multiple creditors, then the prospect of reaching out to each of them may feel daunting and can also be very time consuming. This is where reaching out to specialists who can assess your debts for you or speak with your creditors on your behalf may come in useful – we’d advise looking for free options.
5. Consider a different method
There’s different ways you can approach paying off your debt. Trying a new method to what you are doing currently may help you reduce debts even quicker.
If you have multiple debts, this involves you focusing on paying off your smaller debts first. Once your smallest debt is paid off, you move on to the next smallest debt and so on.
Slowly, you will be closing off the number of debts you have so you are left to deal with your larger debts, but fewer creditors.
Prioritising High Interest:
This method involves you paying off your loans that incur the highest interest first. By doing so, the rate at which your debts increase through interest will reduce and you will be left with your lower interest debts to deal with.
The guidance above may provide a good starting point to look at ways in which you can reduce your debt, but if you are seriously struggling to keep on top of things you may want to seek help from professionals.
If you would like a free chat to see what’s available, then don’t hesitate to reach out – our debt specialists will be happy to talk you through your options.