If you’re feeling overwhelmed by debt, don’t panic. There are things you can do to manage your debt and get back on track.
Debt is a normal part of life for many of us. Many of us have loans, mortgages, credit cards and other debt so it’s just a part of how life is now.
But it can be easy to feel overwhelmed by debt, especially if you have a lot of it or if you’re struggling to make payments.
I won’t pretend I can help fix everything, but if I can help even a little bit, I consider my job with this website done.
1. Face your debt head-on
The first step to avoid being overwhelmed by debt is to face it head-on. This is the toughest step in this entire process but also the most important.
To go on a journey anywhere, you first need to know where you are. That’s why this step is so important. It will be tough to face up to your situation and take stock, but trust me, it really is the first, most important step to real change.
Once you have a good understanding of your debt, you can start to develop a plan to pay it off.
- Make a list of all your debts, including the amount you owe, the interest rate, and the due date for each payment.
- Review your list and identify any debts that you can pay off quickly. This could be small debts, such as a credit card balance, or debts with low interest rates.
- Prioritize your debts by interest rate, with the highest interest debts at the top of the list. This will help you focus on paying off the debts that are costing you the most money.
Other debt payment methods work too but often it’s just easier to pay off the highest rate first. The snowball method works too if you prefer.
2. Create a budget
A budget can help you track your income and expenses so you can see where your money is going. This is time consuming rather than difficult but is the second most important thing you can do to avoid being overwhelmed by debt.
A budget can help identify areas where you can cut back on spending so you have more money to put towards debt payments.
- Choose a budget method that works for you and stick to it. I recommend a basic spreadsheet, covered in this post.
- Be sure to include all your income and expenses in your budget, including your debt payments.
- If you’re having trouble creating a budget, there are many online resources and budgeting apps available to help.
3. Set priorities
Not all debt is created equal. Some debt, such as rent, utilities, high-interest credit card debt, should be prioritised over other debt, such as student loans.
- Consider the interest rate on each debt when setting priorities. Pay off high-interest debts first.
- Also consider the amount of the debt and the consequences of defaulting on the debt when setting priorities. For example, you may want to prioritize student loans over credit card debt because the consequences of defaulting on student loans can be more severe.
4. Make a plan to pay off your debt
Once you’ve set priorities, you can start to plan to pay off your debt. There are a few different methods you can use, such as the snowball method, the avalanche method, or a combination of the two.
The snowball method involves paying off your smallest debts first, regardless of the interest rate. This can help you build momentum and motivation as you pay off your debts.
The avalanche method involves paying off your highest interest debts first. This can help you save money on interest in the long run.
- With the snowball method, you pay off your smallest debts first, regardless of the interest rate. This can help you build momentum and motivation as you pay off your debts.
- With the avalanche method, you pay off your highest interest debts first. This can help you save money on interest in the long run.
- Choose the method that works best for you and stick to it.
Here’s an example of how to use the snowball method to pay off debt:
- Let’s say you have three debts: a £100 credit card balance with a 15% interest rate, a £500 loan with a 10% interest rate, and a £1000 loan with a 5% interest rate.
- You would start by paying off the smallest debt, which is the £100 credit card balance.
- Once you pay off the credit card balance, you would focus on paying off the £500 loan.
- Once you pay off the £500 loan, you would focus on paying off the £1000 loan.
By using the snowball method, you can build momentum and motivation as you pay off your debts. You’ll get a psychological boost every time you clear a debt, which helps you keep going.
You also make life a little easier as there’s one less debt to pay and one less to manage.
Here’s an example of how to use the avalanche method to pay off debt:
- Using the same example as above, you would start by paying off the £1000 loan, which has the highest interest rate.
- Once you pay off the £1000 loan, you would focus on paying off the £500 loan using the money you used to pay off the first, plus money you were paying off the smaller loan..
- Once you pay off the £500 loan, you would focus on paying off the £100 credit card balance with everything you were using to pay all 3.
By using the avalanche method, you can save money on interest in the long run. Every time you clear a debt, you add the money to the second debt to pay if off faster.
Rinse and repeat until you’re paying off your last debt with everything you were using to pay all of them.
5. Seek professional help if needed
If you’re struggling to manage your debt on your own, don’t be afraid to seek professional help.
There are credit counsellors and debt charities that can help you develop a plan to pay off debt and negotiate with creditors.
Here are some additional tips for managing debt without feeling overwhelmed
The information above should be enough to set you on the road to recovery, but there’s more:
- Break down your debt into smaller, more manageable pieces. This will make it seem less daunting and more achievable.
- Set realistic goals. Don’t try to pay off all your debt at once. Start with small goals, such as paying off one debt per month or paying off a certain amount of debt per month. The snowball method works for this.
- Be patient. Paying off debt takes time. Don’t get discouraged if you don’t see results immediately. This is especially true if you opt for the avalanche method.
- Don’t be afraid to ask for help. If you’re struggling, talk to a trusted friend or family member, or seek professional help from a debt charity.
Remember, you’re not alone. Many people struggle with debt. But with careful planning and effort, you can manage your debt and get back on track.
Like most things in life, it won’t be easy, but it is necessary. It’s also worth it. That feeling of elation when you clear your final debt is one of the best feelings in the world!
