The following tackling debt toolkit is aimed at providing you with the practical guidance you need towards taking those first all-important steps towards proactively managing your debt.
step one: talk to us
Our debt support officers provide dedicated debt and budgeting advice to everyone who is eligible to use our services. This includes past and present ICAEW members, ACA students, past and present ICAEW staff and their close families.
They speak to people about all sorts of debt-related issues, which include mortgage arrears, juggling multiple credit cards and payday loans. Contrary to popular belief, being an accountant doesn’t make you immune to financial difficulties. Life-changing experiences, such as being made redundant, separating from your partner or becoming seriously ill can drastically impact your financial situation.
We are not here to judge you and we operate separately to the ICAEW. Everything you tell us is treated with the strictest level of confidentially - your employer or the ICAEW will not be informed of what you share with us.
Our free debt advice service is available for you to use 24 hours a day, 7 days a week. Here you'll find the different ways you can talk to us.
Learn more: ‘why you should speak to us about your money worries.’
step two: work out your budget
What does your monthly budget look like? Do you have one? Or perhaps you used to have one, but don’t really refer to it these days?
Budgeting and good money management go hand-in-hand. Generally speaking, there are two elements to budgeting:
- Calculating how much debt you have - and then budgeting for the repayments.
- Everyday budgeting - your incomings vs. your outgoings, which will naturally include your debt payments.
Not having a budget makes getting to grips with your financial situation tricky, as you aren’t keeping tabs on what’s coming in and going out. And when this happens, you can wind up living from payslip-to-payslip, which can be stressful.
Another best practice piece of budgeting advice - pay off your debts before saving. We know it’s advisable to have a rainy day pot of money set aside. But if you owe money on credit cards or other debts, it makes no sense to have money sat in your account when you are being charged interest on your debt. Depending on how much you’ve saved, you could use it to pay off all or some of your most-pressing debt, which leads nicely on to our next point…
step three: prioritise your debt
This is something you should do naturally as you’re working out your budget and finding ways to bring your debt down. You can, and should, categorise your debts into the following three categories:
- priority debts - such as court fines, Council Tax, TV licence, energy bills, mortgage or rent payments
- non-priority debts - personal loans, overdrafts, store cards and any money you’ve borrowed from people
- debt emergencies - such as court or bailiff action, energy disconnection and eviction
Where possible, aim to pay off your priority debts first. The consequences of not doing so, which include bankruptcy, bailiff visits and losing your home, are far too serious to not tackle these debts first and foremost.
step four: reduce your debt
One of the biggest first steps in tackling debt, is identifying the scale of the situation and looking for ways to reduce it.
As soon as you can, make a list of all of your outgoings (e.g. credit cards, store cards, overdrafts, loans, mortgage payments) and how much you currently pay on them every month. How long are your debts going to take to pay off? How much of what you’re paying is interest? Are you only paying the minimum amount for some of your debts?
Now, where possible, see if there are any bills you can reduce. For instance, gas and electricity, mobile phone, broadband or car insurance. Every little penny adds up. Even if you manage to negotiation a small reduction, it’s still a reduction at the end of the day. If you’re not keen on haggling or unsure about where to start, take a look at this handy advice from Which?
In the meantime, if you don’t know what your financial footprint is and how it’s impacting your overall financial health, you need to check your credit score. This rating is what all money lenders (e.g. mortgage providers) use to determine whether they’re going to lend money to you. A bit like a traffic light system, your rating is ranked from green to red, with green being the healthiest score.
step five: consider the wider options
By this, we mean explore bankruptcy, Individual Voluntary Arrangement (IVAs), Debt Relief Orders (DROs) and Debt Management Plans (DMPs). They are all measures that are designed to help people tackle serious debt problems.
IVAs are: legally binding contracts between you and whoever you owe money to. They essentially involve you agreeing to pay off your debts within a certain timeframe.
DROs are: an arrangements that mean you don’t have to pay off certain types of your debts for a year. After a year, the debts are written off.
DMPs are: an informal agreement between you and your creditors for paying back your non-priority debts.
Learn more: ‘should you enter into an IVA’
step six: pay off your debts before saving
We understand that it's sensible to have a 'rainy day' fund set aside. But, if you owe money on credit cards or other debts, it makes no sense to have money sitting in your savings account whilst you are being charged interest on your debt. Use any savings to pay off your most pressing debts first. Once you've paid off your pressing debts, you can plan how to set up an emergency fund in the future to prevent further borrowing.
we're here to help..
We hope you’ve found this toolkit useful. Remember, if you are in debt and aren’t sure where to turn, we’re here to help. Not only do we run a free, dedicated debt advice service, our advisors have lots of experience of helping people, just like you, improve their financial situation based on their individual circumstances.
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