Paying off debt

Getting out of debt can be a real struggle.

Everyone's personal situation is different, of course, but some general principles for reducing debt apply to us all.

With just a little effort, the right information and a plan, you can quickly begin to get your finances straight. Take 10 minutes to find out how to get started.

Before you begin: Get all your information together
To find out exactly how much you owe, you need the most recent statements from your bank accounts, credit cards, store cards, loans and any bills you owe money on, such as gas or electricity. You'll also need up-to-date information on all other weekly, monthly or annual expenses, such as your rent or mortgage, and food bills. And you need an accurate figure of how much money comes in to your household from your wages and any other sources of income.

Step 1: Find out exactly how much you owe
Add up all the amounts you owe from your overdraft, credit cards, store cards and loans. If you don't have a recent statement, ring the bank or card company and find out exact figures. Ask how much the next minimum monthly payment is going to be too.

Step 2: Work out your total monthly minimum payment
To give you an accurate figure of what you currently pay to service your existing debts, add all your monthly minimum payments together. In most cases, the minimum you pay is only the monthly interest you owe, which means you're not paying back any of the original debt.

Step 3: Work out your monthly living expenses
From your recent statements and bills, work out your monthly total for expenses, including:
- Rent or mortgage
- Food
- Travel (including petrol and all other monthly expenses for you car such as insurance)
- Entertainment
- Utilities (gas, water, electricity)
- Council tax
- TV licence

Step 4: Work out if you're spending more than you earn
To find out if you have any money left over after you've serviced all your debts and paid all your monthly expenses, add the two monthly figures together. If your monthly income is smaller than this total, you need to reduce your monthly expenses or increase your monthly income to stop your debts growing. If it's bigger, you have surplus income you can use to start paying off your debts.

Step 5: Look to reduce your monthly expenses
Start looking to avoid spending money on things you don't actually need.

The obvious places to make savings are food, entertainment and travel. Going out one night fewer every week, making packed lunches instead of eating out, using public transport rather than taxis, avoiding ATMs that charge extra for withdrawals, giving up smoking. There are hundreds of ways you can immediately reduce your monthly expenses.

If you have a car, and it's not absolutely essential to your everyday life, consider selling it. This will raise capital and reduce monthly expenses. If you use public transport regularly, think about using weekly or monthly season tickets.

Step 6: Make the most of your assets
Look around you for opportunities to raise some additional cash by making the most of your existing assets.

Have you considered renting a spare room to a lodger? Have you asked everyone earning a wage in the house to contribute to monthly bills? Could you save money on petrol by offering a lift to work to a neighbour or friend? Have you asked about overtime at work? Have you considered remortgaging your house to release equity? Think laterally and be bold.

Step 7: Consolidate your debts
Money you borrow on credit cards is expensive compared to money you borrow as a loan, so it's worth speaking to your bank or a loan company about taking out a loan to pay off all your other debts. Crucially, you need to be sure you're paying off the debt at a lower interest rate. Decide what repayment you can afford each month and use that to work out the period over which you'll pay the loan off. If you have all the relevant information, which should be on your card statements, the lender should be able to quickly work this out for you.

If you can't get a loan, look to moving your credit card debt to another card with a lower interest rate.

Step 8: Talk to someone about your debt worries
For more free advice on managing and reducing your debts, you can talk to your local Citizens' Advice Bureau or a debt management charity. And talk to your bank or building society; it's usually in their interest to help you out.