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How to stay out of debt - some helpful advice

By Edited Nov 13, 2013 0 0

There are ways to get out of debt. If you owe money and you're keen to repay it as quickly as possible, there are things you can do - and people you can talk to - to speed up the process.debt

Having said that, the best way to stay in control of your finances is not to get into debt in the first place!

So what's the best way to stay out of debt? Some helpful advice…

Budgeting

The 'trick' to budgeting is ensuring you don't spend more than you earn/receive on a monthly basis. If you can do that, you'll stay out of debt.

So:

1) Write down everything your household earns/receives per month (after tax & National Insurance).

2) Write down everything your household spends per month - mortgage/rent, utility bills, insurance payments, food, transport, clothing, etc.

3) If the second figure

a. is smaller than the first one, you should be able to stay out of debt - whatever's left is yours to spend in any way you like, although it's always a good idea to save for a rainy day.

b. is larger than the first one, you need to cut back on your spending and/or increase your income.

Figuring out your income is normally quite easy, but your spending can be a lot harder to track. This budget planner could be useful: you'll see there are a few lines near the bottom - marked 'Other' - where you can write in any other spending you can think of.

You may find it helpful to spend a month writing down everything you spend, to make sure you get a realistic picture.

Are there any exceptions?

Sometimes, we all come across unexpected expenses. The car might need a repair, the fridge might break, we might need to visit a relative who lives some distance away…

Similarly, anyone's income can drop from time to time - because of sickness, shorter working hours, even a period of unemployment…

Whatever the reason, not everything in life can be predicted in a budget. This is one reason savings are so important, as the more money you have in the bank, the more protection you'll have against unexpected costs and/or any shortfall in your income - the kind of thing that could easily drive you into debt if you haven't built up any savings.

Are there any 'good' debts?

Finally, not all debt is 'bad'. Sometimes, taking on debt is the only way to do something that's important to you, or that can actually save/make you money.

For example:

1) A car loan could be worthwhile if it lets you take on a better job.

2) A student loan could be worthwhile if it helps you get a qualification.

3) A mortgage is probably the only way you can afford to buy your own home. It's a big debt, but on a monthly basis your mortgage payments could easily cost you less than you're paying in rent. Having said that, you'll be responsible for all kinds of expenses (like maintenance) that you wouldn't even have to think about if you were a tenant.


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