A Guide to Keeping Out of Debt

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What You Need to Know

  1. However much you have at your disposal, the only guaranteed way of staying out of debt is living within your means.
  2. The first step to a debt-free life is to draw up a list of all your outgoings and put this against your income. Use this information to work out a budget and then work to stick to this.
  3. Be sure to note down everything you spend, even if it’s little items. Remember that every penny counts when it comes to keeping out of debt.
  4. Cutting down on your outgoings will be difficult, but may be necessary of you want to stay debt-free. Consider switching mortgages, credit cards or even mobile phone contracts to save money.
  5. To build up a bit of a cushion between you and debt, you could consider building up your income as well as reducing your outgoings.
  6. Try and pay with cash as much as you can. Using a card can cause you to lose track of what you’ve spent and what you’ve got left over.
  7. Even if you are debt-free, it’s still a good idea to build up a contingency fund, just in case your personal or financial circumstances change.

Budget, Budget, Budget

If you want to stay out of debt then, whether you’re a billionaire or an average worker, you’ll need to draw up a budget and do your best to stick to it. Above all, you should:

  • Compile a spreadsheet listing all your outgoings as well as every penny you earn. Do this for two or three months in order to get a good picture of your personal finances and give you an idea of how much you can spend and still stay debt-free.
  • Be sure to note down everything you spend, even if it’s little items. Remember that every penny counts when it comes to keeping out of debt.
  • Be realistic. However much you may be swayed by adverts and magazines illustrating the glamorous lives of the rich and famous, learn to live within your means. This may mean making sacrifices and doing without certain luxuries, but is without doubt one of the best ways of ensuring you stay out of debt.

MoneySavingExpert.com have a free budgeting tool you can use to help set sensible limits.

Cut Down on Outgoings

Once you have drawn up your monthly outgoings-versus-income spreadsheet, you should be able to identify area where you can spend less. Top ways of reducing your outgoings and so reducing your chances of falling into debt include:

  • Ensuring you’re getting the best deal on your contracts. Whether it’s your mobile phone, mortgage repayments or credit cards, complacency can cost you dear. So, remember to always shop around for a better deal and, if a contract is up, don’t be blindly loyal to one brand but be ready to switch to a competitor if they can offer a better rate.
  • Being a savvy consumer. Make full use of special offers, whether it’s for gym membership or supermarket goods. Sign up to voucher sites and follow brands on social media channels such as Twitter to keep up-to-date with the latest money-saving offers. However, don’t be sucked in by offers that don’t actually offer any value. For instance, supermarket bulk buy deals may seem attractive, but may actually lead you to buying more than you could ever need.

Boost Your Income

Even if you stick closely to your budget and cut back on your outgoings as much as possible, you may still find that you barely break even each month. You may even fall a little short each month, pushing you little-by-little into debt.

To build up a bit of a cushion between you and debt, you could consider building up your income as well as reducing your outgoings. For instance, you may want to take on a part-time job or take on more hours or extra responsibilities in your current job. Alternatively, if you’re a homeowner, you may want to take in a lodger or rent out your garage or parking space, or you could convert unwanted goods into cash via online auction sites for a short-term financial fix.

Build-Up a Contingency Fund

If you manage to balance the books and even have a little left over at the end of each month, then well done! This is without doubt the best way of staying out of debt. However, circumstances can change; you may lose your job, your car may need some emergency repairs or you may even fall ill. As such, you should take steps to guard yourself against falling into debt in the future by building up your savings.

So, consider opening up a specialist savings account and paying a little into this by direct debit each month. Once you start building up your fund, leave it untouched and only dip into it if circumstances do change and you believe you may fall into debt.

Cash is King

One of the easiest and most effective ways of staying on top of your finances and staying out of debt is to get into the habit of paying by cash whenever and wherever possible. Of course, with debit cards, you can only ever spend money you have got in your account. However, even debit cards can have their drawbacks. For instance, how many times have you looked at a bank statement and struggled to recall what you used your debit card on? Or how many times have you gone over your budget, even by just a few pounds, while paying by debit card.

In comparison, paying by cash will make you think at least a little about every purchase you make. Effectively, you will have a greater sense of spending your hard-earned money. Plus, if you only want to spend £40 on a pair of jeans, taking this amount to the shop in cash means you simply won’t be able to go over budget. Plus, of course, with cash, you may get some change to fill your piggy bank up with – and every penny counts when you’re trying to stay out of debt.

Get Help

Keeping your personal finances on track and keeping out of debt can be a struggle. Fortunately, however, it’s not something you need to struggle with on your own. In the first instance, tell your partner or maybe your family and closest friends that you intend to make more of an effort to stay in the black. Their support can help deter you from making rash financial decisions and give you the encouragement to stick to a strict budget.

Alternatively, get specialist, professional help. If you are in debt already, then the National Debtline or your local Citizens Advice centre may be able to provide you with free, impartial support. If you’re still debt-free and determined to stay that way, then an Independent Financial Advisor (IFA) will be able to help you with this, for instance by helping you draw up a strict budget for your outgoings and recognising areas where you can cut back on costs and boost your earnings. A simple online search should help you find a local IFA able to help you.

Further Reading

  • Prepaid cards are a great way to help limit your spending. Click the link for our guide on the subject.
  • Staying in the black is even harder and even more important if you’ve just lost you’re your job. Read our guide to being made redundant and ensure that you receive the treatment you’re entitled to.
  • If you need to find an IFA, unbiased.com can help you do so.
Galina Galina

It sounds like pieces of advice from people who live in a Dream World.
I resigned due to inconvenience of commuting (my Company moved the office into Squire Mile area of London from Epsom - my door step area). It was almost two years ago - this is how long I am trying to find the job. Naturally, I fell into debts regardless the fact that I've rented out the only bedroom in my house to a stranger, and becoming a permanent seller on all car-boot sales around my area and farther.
Just as you suggest, I went to discuss my financial problems with HSBC, where I have my current account. The Adviser was a charming and understanding (as it looked then) person, who really took my problems to her heart. However, a few days later, I've got a threatening letter from HSBC.
Was my visit to HSBC adviser worth doing? - I don't think so. What did I achieve by going there..?
Citizens Advice Bureau in my town (Sutton, Greater London) doesn't work the way it worked a few years ago - there is nobody to share your problems with and get an workable advice. Now they keep couple of useless teenagers at the front desk to point out at the endless rows of brochures as if this is what visitors came for.
Any further advice by your people? - Test the real life.


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