How to reduce your debts in 2020

How to reduce your debts in 2020

author: Adele Kitchen

By Adele Kitchen

With 2020 fast approaching, it's a good time to take stock of your finances. Perhaps you’ve been burying your head in the sand, but want a fresh start? Here's a rundown of the many ways you can get yourself out of debt in the new year ahead.


The best place to start is to create a budget to get a clearer picture of your finances. Then you’ll be able to see if you have any spare money left over to increase your debt repayments, or if there are any areas you can cut back on.

Gather your paperwork

Set aside some time to get all of your paperwork together, including wage slips, bank statements, household and personal bills, as well as any debt statements. If you live with your partner, it would be ideal to work together to create a joint budget. 

This might seem overwhelming if you have a lot to go through, but it's worth it in the long run. The good thing is, you are taking control of the situation to stop things spiralling further. Make sure you gather the following creditor information. Your budget will help you to answer these questions:

  • Up to date balances from your creditors, taking your last payment into account
  • Monthly repayment amounts - can you afford to increase your payments?
  • Monthly interest charges - can your creditors offer you a lower rate, or can you find one elsewhere who will? 
  • Minimum payment amounts - can you afford to pay more than the minimum? (Please note, paying just the minimum will show on your credit file and could negatively impact your ability to get credit in the future). 

If you don’t have copies of your latest bills, don’t be afraid to give your creditors a call or log on to your online bank account if you have one. If you need to estimate any figures, be honest with yourself and always overestimate rather than underestimate. 

Create a budget

The Citizens Advice website has a handy tool which takes you through the whole process of creating a budget step by step. But if you prefer to create a budget yourself, follow these steps:

  1. List all of your monthly incomings as they appear in your bank account (ie after tax), such as your take home pay, any investments, benefits or other income you receive.
  2.  List all of your monthly outgoings, including everything from household bills to travel, childcare, hairdressers and food. Make a note of how much you spend on each category. Check your receipts and bank statements for details.
  3.  Deduct your total outgoings from your total incomings to find out your ‘disposable income’. This is the amount you are left with after bills each month.
  4.  If you follow this process for the last 3 months, then divide the figures by 3 for each category, it will give you an average to work with. Include extra spending like Christmas and divide it by 12 months for an average per month spread over the year. 

Armed with this information, it will be easier for you to find areas that you can cut back on, so you can put more money towards clearing your debts quicker. Read on for more ways to move onwards and upwards in 2020.

Prioritise debts

Before putting all of your energy into reducing your debts, make sure you prioritise bills such as:

  • Mortgage or rent
  • Secured loans
  • Council tax
  • Gas and electricity bills
  • TV licence
  • Child maintenance
  • Court fines
  • Taxes 

There can be more serious repercussions if you fall behind with priority bills (e.g. not paying your mortgage could lead to repossession of your property). 

If you are facing legal action, you need to get debt advice urgently. Speak to Citizens Advice, or debt charity like StepChange who can offer free, non-judgemental advice. Alternatively you could contact an independent financial advisor, fees may apply.

There are different methods of organising your non-priority debts in your bid to become debt free. One method is known as ‘snowballing’, where you target the smallest balance first. Once the smallest debt is cleared, move on to the next smallest one and put any freed up funds towards it to gain momentum. With this method, it’s important to maintain your minimum repayments on all of your other debts at the same time, to prevent a default marker from being applied to your credit file. Snowballing is good if you want the sense of achievement gained from reducing the number of debts you have quickly. 

Alternatively, you may prefer the ‘avalanche’ method, where you earmark the larger debts with the highest interest rates first. These debts are effectively costing you the most money.  

Remember to only increase your payments if you can afford to maintain at least your minimum contractual payments on all your other debts. It’s also wise to check that your creditors won’t apply any early repayment charges before you make any changes.

Your budget needs to be realistic so you to stick to it. Try not to put too much pressure on yourself to pay off unreasonable amounts each month. Make sure it is affordable for you (and your partner) to keep up over the course of the whole year. You can always increase the amount each month if you have less costs.

0% credit cards

Whichever strategy you apply, make sure that you clear any 0% credit cards that you may have before the introductory deal ends. Otherwise the interest rates will shoot up and you could end up with a nasty bill. 

Check if it’s possible to switch over to another 0% offer if you haven’t managed to clear the debt in time. There are no guarantees that you will be accepted for an application, as it all depends on your individual circumstances and the criteria the lenders are looking for.

Similarly, if you are able to transfer any of your interest bearing credit cards to a 0% credit card, this could help save you money on interest and clear your balances quicker. Please note fees may apply to transfer over.

Manage your direct debits

Now that you have created your budget and organised your debts in priority order, it’s time to do a bit of financial spring cleaning. Cancel any old direct debits that you didn’t know you were still paying (such as subscriptions you no longer use), then you can put this money towards your debts. 

Also, look into opening a new bank account for all your outgoing direct debits. This will help you to know exactly what is left as disposable income in your current account, making it easier to stick to your budget. 

Make sure your new current account isn’t with a bank you already owe money to, as they can potentially access funds from your savings or wages to use towards your debts, without your prior permission. 

Consolidate debts

Consider merging your balances into a consolidation loan. You will need to check with your new lender if this will reduce your term or the amount of interest you are currently paying. 

This will help you decide whether or not debt consolidation will get you out of debt any quicker than if you keep your debts separate. It depends on your individual circumstances and affordability. Try this debt consolidation calculator to give you an idea of whether or not this option could be suitable for you.

Speak with creditors

Don’t be afraid to contact your creditors to ask for reduced interest rates or to ask them to remove any unfair interest or charges. Explain your circumstances and see if there is any flexibility on their side. You are within your rights to raise a complaint if you feel you have been treated unfairly. 

Citizens Advice provide a handy letter template that you can use to make a payment offer to your creditors and ask them to freeze interest and charges. Now that you have your budget to hand, you can also use this to prove to your creditors what your affordability really is. Also, Debt charities like StepChange work on your behalf to liaise with your creditors if you would prefer to use their support and knowledge. 

Be sure to check if making reduced payments will have any impact on your credit score, as your debt can default on your credit file if you don’t meet your contractual payments. If it is part of a Debt Management Plan (more on those later) it could affect your credit score.

Increase your income

Another way to help reduce your debts in 2020 is to try and boost your income so you have more money to put towards your repaying debt. Check if you are entitled to benefits on the Government website or contact Citizens Advice who can help you go through your individual finances. If you are in work, think about working overtime, requesting a salary increase or applying for a second job.

If this is not realistic or feasible, perhaps have a root through your things in case you find something valuable you could sell on websites like Ebay, Gumtree and Facebook Marketplace.

Make lifestyle changes 

Sometimes little changes can also make a big difference towards clearing your debts. Why not try this quick cash finder tool to see how much small things like daily cups of coffee or weekly lottery tickets can really add up. For example, if you spend £2.00 on a cup of coffee each day, that comes to a whopping £730.00 a year. Simple money saving lifestyle suggestions include:

  • Make your own coffee at work
  • Pack your own lunches instead of eating out
  • Consider ditching brand loyalty and branch out to different supermarkets with cheaper deals, or try own branded items. You can research on the internet to save time going round the shops.
  • Think about cutting back on non-essential subscriptions like magazines, TV programmes, music apps, lottery tickets, or the gym if you rarely use them.
  • Cut down on non-essential beauty products or clothes 
  • Is there anyone you could share a lift to work with, to reduce petrol costs?
  • Try and prevent impulse online shopping by leaving items in your basket for a while. Come back to them hours or days later to see if you still really want or need them. 

Use savings

If you already have some savings put away, think about using some or all of them towards your debts. The interest you are charged on credit will usually be more than you gain on savings, so it makes sense to use savings to pay debts. Always double check the terms and conditions of your contract first, in case there are any early repayment fees.

Switch providers

Another way of generating more money to clear your debts in 2020 would be to look at switching providers. This includes utility providers, mobile phone contracts, TV and broadband packages and insurance providers. 

You can use comparison websites like uSwitch to find the best deals. For example, if you want a new mobile phone deal, just select the type of phone and provider that you are looking for to reveal current offers. You can either switch provider using this information, or contact your current provider to barter with them to see if they can match your preferred deal. Remember, some companies charge termination fees for leaving early. 

For tips on haggling, check out our top 10 tips on how to haggle.

Other options for paying off your debts

If after reviewing your budget, you find you are spending more than you have coming in, don’t worry, you are not alone. But it is important to try and redress the balance sooner than later to take back control. 

You could contact your creditors directly or contact an independent advisor or a debt charity like StepChange, who provide free, non-judgemental advice to help you get back on track. There are different debt solutions out there depending on your circumstances, such as: 

  • Debt Management Plans - An informal agreement with your creditors to pay off your unsecured, non-priority debts in affordable installments. A financial company will liaise with your creditors and distribute your payments between your debts. Some companies charge fees for this service. Not all creditors on the plan will agree to freeze interest and charges. 
  • Individual Voluntary Arrangements - Is a form of insolvency. It’s a formal, legally binding agreement with your creditors to pay off all or part of your unsecured debts, dealt with by an Insolvency Practitioner on your behalf. It usually lasts for 5 or 6 years and any remaining debt after this time is written off. IVAs can affect your job if you work in areas like policing, law or accountancy. Depending on the value of your home and the amount of equity you have, you may have to remortgage your house to put a lump sum towards your IVA. You may also be asked to introduce any windfalls. Fees usually apply. 
  • Debt Arrangement Schemes - This is a debt solution comparable to a debt management plan to clear your debts in full, but exclusively for people in Scotland. All interest and charges will be frozen as long as payments are maintained towards the DAS. Fees usually apply. 
  • Trust Deeds - Is a formal agreement with your creditors to pay part of what you owe back over the course of around 4 years, and then the remaining debt is written off. You may have to sell valuable assets to contribute to it. Trust Deeds may affect some jobs. Fees usually apply. 
  • Debt Relief Orders (DRO) - These are designed to help non-homeowners with low incomes to get out of debt after their accounts have been frozen for a year. It is suitable for debts under £20,000. Follow this link to check the eligibility criteria. DROS may affect some jobs. The official receiver’s fee is £90. 
  • Bankruptcy - If you cannot pay your debts there’s the option to go bankrupt. It costs £680 online. It is made public and may affect your job. You may lose your assets and possessions. 
  • Administration Orders - If you have at least 2 debts and a County Court Judgement (CCJ) against you and you cannot pay your debts in full (totalling less than £5,000) then you get an administration order. You make one payment per month to your local court and they distribute it to your creditors. The court takes 10% of your monthly payment as a fee. You may be expected to put savings or assets towards your debt and it is best to check with your employer if your job will be affected.
  • Sequestration - Is a form of insolvency for people living in Scotland who owe more than £3,000. You may need to sell your assets towards your debts. Check with your employer if it will affect your job. The cost is £200 before an application can be made.

If you get in touch with a debt charity they will be able to go through the benefits and risks in more detail and discuss your finances to find the best solution to suit your individual circumstances.

Debt solutions can stay on your credit file for 6 years. Your credit score will be affected, if your monthly repayments are lower than the minimum contractual amount. 

The charity StepChange has revealed that 331,337 people contacted them for help with their debts in the first half of 2019 alone. It is possible to make positive changes. Here’s an inspiring story from one family who has been there and managed to themselves out of debt.

Looking to get your credit score in shape in 2020? Check out our latest article on this subject.

Disclaimer: All information and links are correct at the time of publishing.

author: Adele Kitchen

By Adele Kitchen

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How to reduce your debts in 2020 How to reduce your debts in 2020