If you’ve been staring despondently at your bank balance over the past few weeks as your money has evaporated into the festive black hole, you won’t need us to tell you that it’s time to take action.

Getting out of debt is one of the best things you can do for your financial security and quite possibly for your mental wellbeing too – debt and depression have been linked by several in-depth studies.

But getting debt free takes time, effort and a great deal of planning. If you simply hope it will happen then you are not likely to even make some headway, let alone see a debt-free 2021.

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If you really intend to defeat your debt this year, or at least start to bring it under control, then you need a plan. Here’s how to make one.

Find out how bad it is

It can be hard to know how much you owe if you’ve been deliberately hiding away from the full extent of the problem.

The first thing to do is understand exactly how much debt you have. You may have no idea at all or a vague number in your mind but you need to know to a penny what you owe.

And that doesn’t just mean loans and credit card balances, it includes debts like overdrafts.

You can check your various accounts online or perhaps even via your lender’s app. However, if you are worried you have debts you have not kept track of then check your credit score.

That information will include a comprehensive list of your debts. Write down every debt and then the total. Look at the number, really face up to it – that is the number you are going to beat.

Understand your budget

There is one thing that could improve the financial wellbeing of almost anyone, whether they are in debt or not, and yet not many of us ever do it – and that’s draw up a budget.

Before you can clearly understand how much your debt is currently costing you or how much you have to begin repaying it, you need to understand your budget.

This is where you draw up a list of your income and outgoings. You begin by working out your fixed costs: those that cannot be reduced or avoided each month.

What’s left is your disposable income. You need to be realistic about how much you will need for day-to-day living, like socialising. You also need to think about budgeting for things like less common expenses, such as clothes and haircuts.

Once you know your monthly income and outgoings you really have taken a hugely important step. This will allow you to see how much money you can set aside towards overpaying and clearing your debts each month. Knowing that will show you how long it will take you to realistically get back in the black.

This is a hugely important step towards getting debt free. One quick tip, it may be that you can see this will take longer than 12 months. That’s okay. The sooner you start, the closer you will be to living the debt-free life you want.

Know the cost of your repayments

When you are drawing up your budget, keep a tally of what you are spending each month on debt repayments.

That will show you what you are currently spending repaying that debt – don’t forget to include the cost of overdraft charges.

Once you know how much you are paying on debts, you will find it easier to work out whether it will be cheaper to consolidate that debt into one loan. Sometimes, it can be much cheaper to lump your debts together.

It’s important to find out what the settlement figure for your various debts is as some providers will charge a fee for closing your account early. It’s important to factor in that cost.

Once you have decided if consolidation is for you, then see if you can use a loan provider that allows overpayments. This will immediately give you greater control over clearing that debt sooner.

Two important tips. The first is that consolidating debt is not for everyone. If your credit score is poor then you may struggle to find a decent rate. Or if you are on relatively competitive rates already then it may not be cheaper – take the time to research.

Second, if you do consolidate and clear your debts, you must then close down your former debt facilities.

That credit card? Cancel it. Your overdraft? For emergencies only, now. Payday loans? Never again.

If you do consolidate your debt but you don’t do it with discipline then you risk simply doubling your debt if you then continue to use your old credit lines.

Cut your costs

Getting out of debt will improve your life and mean you eventually have more money to live on. However, to achieve that as quickly as you can will involve cutting back.

Once you have drawn up your budget, you can avoid falling further into debt because you will know how much cash you have for daily living expenses after your larger bills have been cleared.

However, if you want to clear your debt even more quickly then now is the time to look for ways you can trim your costs and free up more money to make overpayments.

You might decide to move to a cheaper supermarket or cheaper brands. You could go through your household bills and switch to cheaper providers. You could sell old, unused items and clothes. You could even look into renting a spare room to a lodger and taking advantage of the Rent a Room scheme (the government lets you earn up to £7,500 a year tax free by renting out a room in your home).

Whatever it is, it needs to be sustainable and achievable or you risk simply giving up because it seems too hard.

Build some savings

When you are trying to get out of debt you may think that every spare penny needs to go on clearing the balance.

However, even when you are trying to clear your debts it’s a good idea to have some savings ready for emergencies.

Taking a couple of months to build up a small savings safety net can help you avoid having to borrow again to handle unexpected costs like large bills or sudden emergencies.

Get some help

For the vast majority of people, taking control of their finances and facing up to their full debt situation will make beating their debt achievable.

But if your debt feels beyond your control or if you rely on new credit each month just to manage your repayments and bills then you may have problem debt.

You can still regain control of that but you may want some support in doing so. There are organisations out there that can help you – a good place to start is via the StepChange Debt Charity or the National Debtline charity.

With helplines, template letters and budgeting tools, having one of these organisations in your corner could make all the difference to your debt in 2020.

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