Owing money to a lender, however much or little, can be a weight on your mind. It’s natural to want your debts repaid and off your plate as soon as possible.
But when you owe an amount like £10,000 or more, paying it off in one go simply may not be possible. This could tempt you to pay no more than the minimum amount required, as this will seem more manageable on a month-by-month basis.
That approach may get your debt repaid eventually, but there are ways you can pay it off sooner, without paying the entire balance in one go. Taking steps, however small, to pay more than you’re required to each month will help you get your debts off your plate more quickly, and may save you money on interest, too.
Whether your debt is on a credit card, loan or another type of borrowing, read on to discover how you could pay off a £10,000 debt in nine steps. You may surprise yourself with how quickly you’re able to reduce and clear what you owe!
Step 1: Assess your income and reduce your expenditure
Look at your household income, then add up your expenses. Be as thorough as possible, including everything from essentials like housing costs and groceries, to treats like a fancy coffee or a weekend takeaway. We’re in a climate where the cost of living, particularly in respect to fuel, energy and everyday essentials (food, rent, mortgage repayments, etc.), is rising sharply. So, you may need to set aside more than you’ve spent in the past to make sure your essentials continue to be covered going forwards.
Bearing this in mind, do you have any wiggle room in your budget? Could you, for example, reduce the amount of money you spend on food at the supermarket?
According to research conducted by environmental charity Hubbub, there are a few things people are already doing to free up more of their money despite rising prices:
- 14% of people have changed the supermarket they usually shop at
- 25% are switching to own-brand products and frozen foods to save cash
- 54% are eating out less
- 24% have taken steps to reduce food waste
Further research by Hubbub and Tesco says that getting creative with your meals to make use of leftovers and minimise waste could save £15 a week, or £60 a month. Is this money that could go towards the debt you want to pay off?
Step 2. Use your savings
If you've kept back a pot of money for emergencies, using some of what you’ve squirreled away could make a sizeable dent in your debt. And, quite often, what you’re paying in interest on your debts is more than you could earn in interest on your savings.
For example, if you owe £1,000 on a credit card that charges 18% APR, you’ll end up paying about £66 a year in interest over 18 years if you only make the minimum repayments of £24 per month – that’s more than £1,200 in total interest payments alone. On the other hand, if you deposit £1,000 in a savings account with a fixed annual interest rate of 3%, you’ll earn £30 a year in interest from that money. By using your savings to pay off your debt, you may save yourself money in the long run!
Top tip: Make sure that you won’t be charged any penalty fees for taking your money out of a savings account. Check to see how long it’ll take for you to receive your money once you withdraw it, too – some types of savings accounts need a bit of notice.
Step 3. Monitor your spending
With the number of contactless payments on the rise, it’s easy to ‘tap and go’ and lose track of how all those relatively small expenses add up. But by making an effort to monitor all the times you tap or swipe your card, or use it online, you could quickly highlight habits and expenses you may be able to cut back on. In fact, Money Dashboard – an app that can help you track your spending effortlessly – found that their users cut their non-essential spending by 14% in their first month using the app! This is all money saved that could go towards repaying your debts.
Money Dashboard is just one of the apps available that could help you monitor your spending. Mint and Plum are two popular alternatives, and you may even find that your bank now offers such a service through its app or via online banking. These apps have free versions, which will do the job just fine, but you can access extra features by choosing their premium subscriptions. If you opt for a paid-for version of one of these apps, make sure you factor this into your budget.
Step 4. Choose your debt payment strategy
Did you know that if you pay only the minimum payments on your debts, it could take you months, if not years or even decades, to completely repay what you owe? Increasing your monthly payments by even a small amount can make a big difference to the amount of time it takes you to repay a debt in full. It can also drastically cut how much you end up paying in interest overall.
There are various methods you can use to decide how to pay off your debts and which one to focus on first. For example, you can choose between the snowball method or the avalanche method. The snowball method involves paying off your smallest debt first and the biggest one last, whereas the avalanche method focuses on repaying the debt with the highest interest rate first, so you minimise the amount of interest you pay in the long run.
Remember though, whichever debt strategy you choose, you will still need to keep up with at least the minimum payments on all debts you have, to avoid falling behind and negatively affecting your credit score.
Step 5. Earn an extra income
Starting and keeping up a side hustle is something you can do even if you already work full-time. Side hustles can be a brilliant way to boost your income. However, you will have to declare and maybe pay tax on any additional income you earn, so bear this in mind!
There are plenty of things you could do to earn extra cash. Perhaps you could turn skills you use in your day job into a freelance business that you run in your free time. Maybe you could turn a hobby into a side hustle, like starting your own baking or crafting business. There are also many ways to make extra money online, such as by completing surveys that pay you in return for answering questions or reviewing products.
If you’d rather not do that, then there are also options to earn extra money that take up very little of your time. If you own your home and have a spare room, you could try to rent it out through Airbnb or even take on a longer-term lodger. Alternatively, you could sign up for a service like Just Park to rent out your driveway on your own terms.
Step 6. Sell items and cancel services you no longer use
If the exercise bike you used so much at first is now gathering dust, then maybe it’s time to sell it. At the time of writing, some branded exercise bikes were selling for over £1,000 on classified sites like Gumtree. This could help you pay a significant amount of your debt if you make a successful sale!
To cut your use of unwanted subscriptions, download an app like ScribePay. It claims to save consumers up to £300 a year by helping you view and manage your subscriptions in one place and cancel the ones you don’t need or use. It has a free version, but its premium version will set you back £4.99 a month.
Step 7. Check your eligibility for benefits
While most benefits are designed to support those on low incomes, there may be certain benefits that you’re entitled to that could help reduce your outgoings and free up more of your money, so you can pay off your debt quicker.
For instance, if you’re married and your partner isn’t required to pay tax but you pay at the basic rate, you may qualify for the marriage allowance, which was introduced in April 2015.
According to gov.uk, marriage allowance lets the lower-earning spouse transfer £1,260 of their own personal allowance to their partner’s, thus reducing their tax bill by up to £252 a year.
Step 8. Compare products and switch
There’s almost always money to be saved by comparing various products and services and switching to get a better deal. For example, Which? research suggests you could save over £200 a year by switching your broadband provider, if you’re out of contract.
You can also switch who you bank with, using the Current Account Switch Service to make it as seamless as possible. Many current account providers offer perks or cash bonuses when you switch to them, which could be used towards your debt. These range in value but could be as much as £200. Your eligibility to switch may depend on your credit history, though.
Take note of your renewal dates for your insurance products, and make sure you shop around to see if you can get a better deal for the year ahead. If nothing about you or your coverage has changed and you haven’t made a claim, you can usually find cheaper options. For car or van insurance, compare with us to see if you could find a better deal.
Step 9. Find money in a lost bank account
Another way to source some extra cash is to track down any accounts that you may have lost sight of. You can retrace an inactive bank, building society or savings account through My Lost Account, which is run by the British Bankers’ Association, Building Societies Associations and National Savings and Investments (NS&I).
Moving jobs means you could easily lose track of pensions. Research shows that there are thousands of pensions that have gone missing over the years. However, now the Dormant Assets Scheme has expanded to include retirement savings, it’s much easier to track down any pension savings you’ve lost track of.
If you’re still of working age, it’s unlikely you’ll be able to access money from old pension funds to use towards your debts. However, knowing you have this extra money saved towards your retirement may mean you’re closer to your pension fund goals than you thought. If you could reduce your pension contributions without sacrificing this goal, you could then put this money towards your loan repayments.
Some of these steps may feel like they’re making only small tweaks to your finances. But small changes all add up, and in the end, they can help you to pay off your debt faster as well as help you cope with any added expenses that may come your way.
Read on to find out more about recovering money from old, lost accounts.
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