12 Simple Steps Get Out Of Debt Fast, Forever

Consumer debt is becoming one of the scourges of modern life with average debts per household soaring. I’m not talking about loans and debt used to buy assets, such as houses or commercial buildings, but credit used to buy depreciating consumer goods like cars, TV’s and furniture.

In an earlier podcast episode, I talked about the rent-to-own stores which prey on the poorer members of society selling them consumer items at ridiculous prices and then charging extortionate interest rates on top!

Whatever the reasons for getting into serious debt, if you want to live without worry and fear it is vitally important to get out of debt fast and stay debt free forever.

Here are my 12 steps to get out of debt fast and stay out of debt for good 

1. Prioritise debts in order of importance and cost of servicing the debt. Obvious priorities are things like keeping a roof over your head and maintaining power supplies, rather than paying those who are shouting the loudest. Look at the cost of your loans or credit cards and clear the debts with the highest interest rate or repayment. Clearing the high cost debts first will give you breathing space to pay off other debts faster by saving money on interest.
2. Slash non-essential outgoings. Go through all your standing orders and direct debits and ruthlessly cut out everything you don’t need, especially things like Sky TV or that membership of the gym you only visit once a month. Exercise at home and find a way to walk more often.
3. Make a plan to start paying off debts and stick to it. Most people don’t realise that if you just pay the minimum amount required on a credit card it will take several years before the debt is paid off. Start clearing expensive debts first so that you can reduce the rising tide of compound interest drowning you by by increasing your balance faster than you can clear it. List all debts and monthly repayments on a spreadsheet and plan your route to financial freedom. This one step of making a list of your debts will make a huge difference.
4. Get a balance transfer card. Whilst this is a short-term measure, transferring credit card balances from high interest charging companies to 0% cards will give you breathing space. Watch out for the balance transfer fees which can be a high as 3%. Sometimes it can be cheaper in the long run to pay a small interest rates with no balance transfer fees.
5. Earn extra cash. One of the most obvious ways of reducing your debts is to increase your income. This can be achieved in a number of ways including starting part-time business, working extra hours, qualifying for a pay rise or getting a higher paid job.
6. Check if you are entitled to any benefits or tax credits. This especially applies to single parents and people in low paid work. It’s more benefit or tax break could transform your finances overnight. To find out more check on the government website or see citizens advice if you live in the UK.
7. Never ignore a bill, demand and especially a debt collector or court letter. Burying your head in the sand will not make the problem go away and ignoring any of the above will make matters worse and cost you more in the long run with interest and penalties. Ignoring bills and letters will ultimately lead to County Court Judgements and debt defaults which will stay on your record and credit file for six years and effectively ruining your credit rating.
8. Speak to your creditors if you are having difficulties.
9. Ask for help. This could involve your Citizens Advice office, an independent debt counsellor or even a relative. We all need a little help from time to time and being in debt can be lonely and depressing.
10. Stay out of consumer debt for good. Never borrow to buy expensive consumer items which depreciate in value and avoid rip-off deals like rent to own products like the plague. The old adage of “if you can’t afford it do without it” should be drummed into this modern ‘I want it now’ age! We have become too accustomed to the ‘buy now pay later’ culture of easy credit, which should be called easy debt, and keeping up with the joneses, which I mention in my forthcoming book ‘Yes, Money Can Buy You Happiness’.
11. Never use expensive payday lenders, unless you have no other choice, and especially unauthorised doorstep lenders will charge you a small fortune interest.
12. Start building your credit rating by making repayments on time and clearing credit cards faster. The higher your credit rating, the more access you will have to cheaper finance and the less you will be dependent on expensive credit.

Finally, measure and monitor to keep the momentum and maintain and debt free lifestyle.

Listen to my Podcast episode "12 Simple Steps 8 Get OutOf Debt Fast And For Good" by Money Kelly  

Listen to "How To Be Broke All Your Life" by Money Kelly

See also:

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How to Monetise Your Knowledge and Skills and Turn Passion into Profits

3 Simple Steps To Improve Your Credit Rating

Welcome to Money Tips Daily.

3 Simple Steps to Build Up and Improve Your Credit Rating.

We've looked at how to check your credit rating, but what to you do if you want to improve or build up your rating or if you have discovered that you have adverse credit registered against you?

There are different strategies for people who have a bad credit history, for instance if you have a County Court Judgment (CCJ) of a Default registered against you, and those who have virtually no credit rating at all.

For those of you who want to build or rebuild your rating, here are three simple steps:

1.      Get a credit card if you can or apply for ‘rebuild your credit’ credit card if you already have a poor credit history. Search for card providers which offer credit to people with an adverse credit history. The interest rate could be as high as 40% so make sure you pay them off quickly.

2.      Pay off your card balance in full each month. This shows a record of handling your finances and you will usually find that card companies will offer to increase your limit. Also, drawing cash on your card is not only expensive, but also demonstrates poor money management skills.

3.      Register yourself on the voters list, assuming you are eligible to vote, or write to the credit referencing agencies with proof of address so they can note your residence. This will show lenders that you are registered at a UK address. Lenders also like to see stability, so the more addresses you’ve had in a short period of time, the stable you are going to look to lenders. This can also apply to how long you have held your current account with your bank, so don’t go switching your account every six months just to get a free offer!

If you have a CCJ or a Default you should take steps to mitigate the pain. For instance, you can apply to have CCJ’s ‘set aside’ if it was registered in your absence or at a previous address. 

You can also ask credit referencing agencies to add a note to your file where there are mitigating circumstances, e.g. “the goods we ordered never arrived so we refused to pay to £50 bill”. With hindsight, it would have been better to pay the bill and dispute it after to avoid wrecking your credit history for six years.

The golden rule is never ignore a court or bailiff letter, debt recovery notice, default or pre-action notice or any letters relating to debts, no matter how painful they are to read. Sitting there looking at a pile of unopened red letters is only going to make matters worse.

As mentioned yesterday, avoid being late with payments and use direct debits to pay bills and card payments.

See also: 

How To Check Your Credit Rating

How to Make Money Online Without a Website or Inventing Your Own Product

Money Tips Daily - How to Check Your Credit Rating and Avoid County Court Judgements (CCJ's) and Defaults

Welcome to Money Tips Daily. Today I want to talk about something that can have a huge impact on your life, your credit rating.

Check your credit rating regularly and protect it by never allowing your rating to be compromised by not paying a bill or defaulting on a credit card, which can stay on your record for up to six years.

Protect your credit rating with your life!

To check your credit file and obtain a credit rating you can apply to one of the main credit reference agencies in your country. In the UK the big three are www.Experian.co.uk, www.Equifax.co.uk and www.CallCredit.co.uk, which can supply a free report or charge a small fee.

You can pay a monthly subscription for ongoing reports, but I would go for the basic report to start with.

You can also obtain a combined report covering all three credit agencies, which will often hold different information on you depending on which company reports activity.

You should check your credit file at least once a year, as errors will affect your ability to obtain credit, take out a mortgage or mobile phone contract or open a bank account.

If you discover something on your file which should not be there, like a County Court Judgement (CCJ) or a Default on a credit agreement or utility bill you can dispute it with the company or go to the Financial Ombudsman or Citizens Advice. 

Companies also report late payments to the credit agencies, which means you could be refused a mortgage even though you have never defaulted on a bill or been taken to court. 

For instance, if your credit card bill is due on 20^th of each month and you manually pay it over the counter at your bank each month on 19^th, you are technically late, as it takes several days for your payment to reach the card company.

You will also be reported for paying utility bills late and for credit searches when you apply for credit even if you do not proceed with the transaction. Some mortgage lenders have been known to decline a mortgage application just because the person had a late payment in the last 3 years!

If you are involved in a legal dispute in the County Court and lose you have less than a month in which to settle the debt awarded to the other side by the judge, otherwise the debt will appear on your credit file as a CCJ for six years even if you pay by instalments or later clear the amount outstanding.

Bonus Tip 1. Pay bills by direct debit to avoid missing a payment, which will appear on your credit file.

Bonus Tip 2. If you are in dispute over a small utility bill always pay it and argue about it afterwards. If you refuse to pay, the company may issue a Default against you, which they can do without going to court. The Default could stay on your record even if you are later proved to be in the right. 

In my days working in banks and financial services I have met countless people who allowed their credit rating to be messed up over a £50 water bill. The water companies were particularly aggressive in going after debtors.

Tomorrow, I’ll give you some tips on how to build up your credit rating.

Listen to this episode on Anchor: Money Tip Check Credit Rating.