The debt adviser’s guide to managing your money

On the final day of #ThePerfectStorm, we ask the experts for their advice: in the face of the perfect storm, how can ELL readers avoid getting into debt – and if it’s too late for that, how can they dig their way out?

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No amount of debt is too large to deal with, but the first step is knowing what route to take. In this article we hear from Sara Williams, the creator of the debt advice blog Debt Camel, with her no-jargon approach, and Ripon Raye, debt adviser and Your Money Matters presenter for East London Radio, about what steps to take to tackle your debt. We also speak to Sonya Barlow, the creator of the Money Matters workshop, on how to save money in the extortionately priced East London boroughs.

Embrace the “good” debts

Not all debt is bad debt, Sara Williams explains. It makes sense when we think of borrowing money as borrowing from our future selves – so long as it benefits them, the debt might be “good”. So, while it’s true that paying off a student loan or mortgage can be daunting, having a degree or a house is something that keeps on bringing benefits. But if you are still paying off debt from food shopping, a pair of shoes, or even monthly bills on a credit card long after they are of any benefit, you may need to rethink your spending. 

Look problem debts in the eye  

If there is a problem – and this is crucial – the worst thing to do is bury your head. It can be difficult to face financial problems, especially when it comes to sharing them with others, and around 11 per cent of us have kept debt a secret from family and friends. But debt can be a slippery and uncomfortable topic that not many of us want to get into. Ripon Raye, who has been a debt adviser for eight years, sees this all too frequently. “As soon as the debtor can’t pay, they can’t talk about it and have tunnel vision – all they see is darkness. I’ve come across individuals where it has taken them years to own up to themselves – they internalise it. It doesn’t surprise me that people develop depression and anxiety.” He adds that, for many, it’s a fear of approaching the creditor. “Don’t assume that the creditor hates you for getting into debt. It’s best to build bridges and talk to them, and 99 per cent of the time they are going to be sympathetic.” 

Photo: Sara Williams

“Snowball” your debt

If you can make the minimum payments towards your debts, the snowball method is probably best for you, Sara says. Essentially, you pay the minimum amount for all your debts, besides one, and then blast it with any left-over money, possibly from working a few hours overtime, or picking up a hustle on the side.  

“It can be slow at the start, but once you get into it you get a certain amount of satisfaction from seeing your debts dropping,” Sara says, “You can get a sense of achievement from paying off one debt, and this will keep you going.” And true to its name, as your debts are eaten away, and as the interest you are paying drops, the snowball gets bigger, picking up speed.  

Claim any benefits you can

It could also be that you are entitled to state benefits, which could help you shrink your smallest debt. However, Ripon has seen people plunged even further by waiting too long to make a claim. “It’s a taboo…if you watch TV what do you see, Benefits Scroungers, Benefits Street… People up and down the country are not claiming what they are entitled to because they are ashamed, and they don’t want to feel a burden.” 

Photo: Ripon Raye Credit: Ripon Raye

Get professional debt advice 

If your money just can’t stretch far enough for the snowball method, a debt adviser is probably the next step – but make sure their services are free! A few options available are StepChangeCitizens Advice, or if you are in East London, Toynbee Hall. Ripon says that giving your adviser the whole picture is crucial. This means bringing proof of income, outgoings, and anything to help them understand your personal situation. Throughout the Coronavirus outbreak though, all advice must be given remotely. It could be – though this is rare – that a simple rejigging of your budget is enough at this stage to get your finances back on track. 

But for those to whom this does not apply, a debt management plan will be the next step. By freezing any interest, this can make your debts a whole lot easier to shrink. But if the amount you owe is too high even without interest, and the amount you can pay is relatively low, it could take a very long time to make any headway. In these cases, bankruptcy – which involves relieving you of some or all your debts – may become an option. However, if you have a house or assets you need protecting and you have a stable income, you may consider an IVA (Individual voluntary arrangement) – an affordable payment plan that your creditors must agree to. 

Choose a budget plan that suits you, and stick to it

Regardless of whether you are paying off debts, or staving them off, budgeting can help to keep you on track. Sara recommends an emergency fund to give some padding for when the unexpected happens – a broken washing machine or inevitable bank-breaking spending over Christmas. Then there is the “money-pot” approach (having a bank account for each spending category, one for “food”, and one for “rent” and so on) which will stop you from overspending on just one thing.

And, not for the faint-hearted, is the “bare bones budgeting plan” – paying the absolute minimum to get by. Sara explains: “There are dangers with this. It’s like a grapefruit diet, you can lose a lot of weight but you’re not going to survive on it for longer than two weeks without going mad.” That said, an intense diet of scrimping can be a good way to kick start your debt plan. Of course, if you are in a family, scrimping to the max may not be possible, so this doesn’t apply to everyone. 

Sonya Barlow, creator of the Money Matters workshop, also has some suggestions for how to save. She suggests the pithily named 50/20/30 rule – spend 50 per cent of your earnings on necessities, throw 20 per cent into your savings, and leave 30 per cent to treat yourself. To cut down on spending, she suggests walking when you can, using food discount apps, and using larger supermarkets rather than the pricier “express” versions. 

Photo: Sonya Barlow Credit: Sonya Barlow

She adds making saving patterns consistent, paying off all loans before treating yourself to that new pair of shoes or that second round of drinks, and to keep away from “toxic” people who encourage you to spend beyond your means. “Know that money is disposable, and that it takes longer to make than it does to spend.” 

Do a coronavirus audit

As the financial impact of the crisis ripples across society, it may become difficult to make the minimum payments towards your debt. But don’t panic – lenders are offering breathing space, either by allowing you to pay in smaller chunks over a longer period, or halting payments until things return to normal. The main thing, Sara says, is to avoid at all costs borrowing more money to tide you over, as your debts will only mount up as the crisis continues.

For more information, and any updates on how the crisis may affect your finances, take a look at Sara’s blog, where she addresses issues currently faced by debtors across the country. It is also crucial to review your budget, taking into account shifts in income and spending habits. Try using this budget template, created by PayPlan, one of the UK’s leading free debt help companies.  

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