Ways to manage debt

Managing debt

It’s common to feel overwhelmed by debts and as if there’s nothing you can do to deal with them. But there’s always an option. It’s always best to speak to your lender as soon as possible to talk through your money concerns. From here you can start to work through ways of managing your debt that will best suit your situation.

There are several Government organisations and charities who can provide help and give independent advice about managing money. These would include Citizens Advice, StepChange and National Debtline.

Which debt to pay first

Priority debts

Some bills are classed as priorities because the consequences of not paying them are greater than the consequences of not paying others. Examples of essential bills according to StepChange are:

• Council Tax
• Utility bills
• Mortgage or rent payments

For example, if you don’t pay your rent or your mortgage you could lose your home. As your home may be repossessed if you do not keep up with repayments on your mortgage.

Other types of debt

You might also have other debts such as personal loans, credit cards and overdrafts that you need to consider.  All products will have different interest rates and it’s important to understand these along with other information such as repayment options in order to be in a position to adequately manage your debts and decide which to prioritise. There could be implications to not paying on time, for example, there might be financial penalties or your credit file could be negatively impacted. This is why it’s important to contact your lender if you are unable to make repayments or to seek free independent debt advice, especially if you have multiple debts.

Don’t forget to think about which debts are a priority.  As well as this, a good place to start is making list of any outstanding debts you have on your credit card, personal loan, overdraft or mortgage and to understand the interest rate you are paying and your repayment options. If you don't know the rate of interest charged to each of your debts check statements or contact your lender to find out. It’s usually preferable to use any excess disposable income you have to pay towards your debts with the highest interest rate first. However, it’s always advisable to speak to your provider(s) or seek free independent debt advice first so you know all of your options.

If you have a credit card, current account, loan or mortgage with The Co-operative Bank and are struggling, please visit our dedicated pages.

Make overpayments if possible

On Credit Cards, the minimum payment is the lowest amount of money that you are required to pay on your debt repayments each month. However, if you make only the minimum payment each month, it will take you longer and cost you more to clear your balance.  If you are able to increase your monthly payments, this will help to pay off debt quicker, and reduce the overall cost of borrowing.

It may also be a good idea to make additional ‘over’ payments on your loan or mortgage, but you will need to speak to your provider first to understand what options are available and how to best go about this.

Emergency budget

Knowing how much is coming in and out of your bank account each month can give you a better understanding of your finances. Most people will experience money worries at some point in their life. An emergency budget helps you plan where money could be saved and how to make your money last longer. Here are a few ways in which you could set up an emergency budget:

Review your spending

It may feel difficult to predict the future, but looking at your current and previous spending habits may help show areas that you could cut back on. You can review your transactions easily by logging in to your online banking and group them into these categories:

• Subscriptions, such as online streaming services
• Rent /mortgage payments
• Utility bills
• Loan payments
• Groceries

It may also be worth considering any up and coming payments that may be on the horizon, such as annual car or home insurance payments.

Remove unnecessary costs

Once you have looked into your finances, you may have found areas you could potentially cut back on. This could be optional expenditures that you don’t rely on such as gym memberships or online streaming services. These may only be small amounts, but will provide surplus money that could be put towards paying off your debts. Although you would need to check with your provider first to understand your cancellation options and any charges applicable.

Using savings

If you already have some money saved, then this could provide a solution to paying off some of your debts. Having some savings can help in the future, so you can always dip into your savings if your situation changes.

Having an emergency fund set up for the future can help pay for any unexpected costs. Saving smaller, regular amounts can sometimes be more effective than saving larger amounts now and then. This is because it can help you get into the savings habit, while not overcommitting too much money.

If you would like to know more about how emergency funds work, read our dedicated article.

Debt management plans

A debt management plan (DMP) allows you to pay off your debts at a rate that you can afford. This is normally used for unsecured debts such as store cards, overdrafts or personal loans. Many free debt advice organisations such as StepChange, can arrange a debt management plan. This would ensure that all the money you pay into it goes towards paying off your debts. However, there are some also some risks when using a Debt Management Plan and before deciding whether it is the right option, you should seek free independent debt advice first.

Talk to your lender if you think you’re going to miss payments

If you’re behind with payments or you just need some respite to take control of your finances, you may be able to arrange debt repayments directly with your creditors. The best way to do this is contact your creditors directly and explain your situation. They should be able to advise you on what the next steps should be.

If you have money worries, please visit our dedicated page.

Talk to your bank

If you feel that you are going to struggle to make payments the first thing to do is to contact your bank. They will advise you what the next steps could be and how to get yourself back on track.