Episode Details

British and American household debt had reached record levels, despite high employment, low taxes and historically low interest rates.

In the UK, the TUC has called for higher pay rises to solve the problem, but we know that is not always the answer. If you cannot manage small amounts of money, chances are you will not manage larger sums. Unless you change your habits, that par rise or bonus will be blown on more stuff or another holiday before you even receive it.

I cover more on managing money in my book on money, but in the meantime, here is THE M.A.N.A.G.E. D.E.B.T. SYSTEM – 10 TIPS TO GET OUT OF CONSUMER DEBT FOR GOOD: 

• M - MAKE A LIST and prioritise debts in order of importance and cost of servicing the debt. Obvious priorities are things like keeping a roof over your head and maintaining power supplies, rather than paying those who are shouting the loudest. Look at the cost of your loans or credit cards and clear the debts with the highest interest rate or repayment. Clearing the high cost debts first will give you breathing space to pay off other debts faster by saving money on interest. Make a plan to start paying off debts and stick to it. Start clearing expensive debts, like credit cards or worse still payday loans, first so that you can reduce the rising tide of compound interest drowning you by increasing your balance faster than you can clear it. List all debts and monthly repayments on a spreadsheet and plan your route to financial freedom. This one step of making a list of your debts will make a huge difference.
• A - AXE NON-ESSENTIAL OUTGOINGS. Go through all your standing orders and direct debits and ruthlessly cut out everything you don’t need, especially things like Sky TV or that membership of the gym you only visit once a month. Exercise at home and find a way to walk more often.
• N - NEVER PAY THE MINIMUM PAYMENT ON A CREDIT CARD. Most people don’t realise that if you just pay the minimum amount required on a credit card it will take years before the debt is paid off. Pay as much as you can and ask the bank to deduct that amount or make extra payments manually to clear the balance faster.
• A – APPLY FOR A BALANCE TRANSFER CARD. Whilst this is a short-term measure, transferring credit card balances from high interest charging companies to 0% cards will give you breathing space. Watch out for the balance transfer fees which can be a high as 3%. Sometimes it can be cheaper in the long run to pay a small interest rates with no balance transfer fees.
• G – GENERATE EXTRA CASH. One of the most obvious ways of reducing your debts is to increase your income. This can be achieved in a number of ways including starting part-time business, working extra hours, qualifying for a pay rise or getting a higher paid job.
• E – ENTITLEMENT TO BENEFITS OR WELFARE SUPPORT. Check if you are entitled to any benefits or tax credits. This especially applies to single parents and people in low paid work. One benefit or tax break could transform your finances overnight. To find out more check on the government website or see your local Citizens Advice if you live in the UK.
• D – DON’T IGNORE BILLS OR DEMANDS. Never ignore a bill, red letter demand and especially from a debt collector, bailiff or court letter. Burying your head in the sand will not make the problem go away and ignoring any of the above will make matters far worse and cost you a whole lot more in the long run with interest and penalties. Ignoring bills and letters will ultimately lead to County Court Judgements and debt defaults which will stay on your record and credit file for up to six years, effectively ruining your credit rating.