5 Practical Tips for Managing Your Debt – A Really Short Guide

how to manage your debt effectivelyIn spring 2016, the average household debt in the UK stood at £54,597, and that figure is rising year on year.

Although that figure does include some mortgage debt, a large proportion of it is personal loans, overdrafts, and credit cards. Put simply, we are borrowing substantially more than we earn.

Having debt is normal, and providing that you are able to manage the amount your borrow, and to make the required repayments, it isn’t a problem.

What is important is managing your debt such that you are in control of it and not the other way round, because if you do fall behind with instalments, the interest rates and other fees can make the amount you owe soar.

To help you avoid the pitfalls of spiralling debt, here are our five practical tips for managing your debt.

What is important is managing your debt such that you are in control of it and not the other way roundClick To Tweet

How to Manage Your Debt Effectively – 5 Top Tips

1. Understanding Your Credit Score

Every person in the UK is given a credit score. What is a credit score? A credit score is a figure which banks and other credit agencies use to assess whether or not you are eligible for credit, and how much interest they should charge you. 

Your credit score is based on a variety of factors, including whether or not you are registered on the electoral roll, how much existing credit you have, whether you’ve defaulted on previous repayments, etc. 

You should find out your credit store from an agency such as Equifax, Experian and familiarise yourself with the activities which will make your credit score go up and down. 

Maintaining a good credit score will make it easier for you to get credit, and reduce the interest rates you have to pay, reducing the total cost of your debt.

Check out our complete guide to credit score in this article: Your Credit Score: How it really Works and Why it is Important?

2. Knowing the Costs of Short-Term V Long-Term Credit

Different kinds of credit come at different costs.

To effectively manage your debt, you need to understand which of your debts are most expensive, so that you can prioritise payments (see below).

Typically bank loans and overdraft facilities are long-term loan options, and come with lower interest rates.

Credit cards and payday loans are designed for short-term borrowing only, and the interest rates are significantly higher.

Take out a short-term option and use for a long period of time and the size of your debt will sky rocket, so understanding which is which is vital to managing your debt.

3. Creating a Budget

If you have a job, or other regular payments such as a pension, tax credits or unemployment benefit, it is relatively easy to work out what your monthly income will be.

Similarly, you’ll have relatively constant outgoings in the form of rent, utility bills and council tax, and any scheduled loan or credit card repayments.

When you get your money each month, pay these anticipated bills off first. Work out what you have left, be it £50 or £5,000, and budget from that what you can afford to pay on food, travel expenses, going out, etc.

You will have to stick to your budget if you want to avoid getting further into debt. For more information on creating a budget check out our handy guide on how to budget and how to create a spending plan that is in alignment with your values.

4. Managing Your Credit Cards

Many credit card companies will offer you attractive introductory rates to make you sign up for their card.

Once this period ends, however, you’ll have to pay the full interest rate. Keep track of the introductory offers which are available, and when they expire on your cards.

Take advantage of free balance transfer offers and move your credit card debt between different companies to maximise the introductory benefits and pay off your debts. You will need to be on top of this in order to reap the benefits.

Managing your debt is a proactive business which requires you to keep well informed, and it’s vital that you make at least the minimum credit card repayments each month so as to stay on top of things. Check out our complete guide to credit card for more information on credit card.

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5. Prioritising Payments

Sometimes there are months when all your bills land at once, and there just isn’t enough money in the pot to pay them.

On these occasions you have to be smart. Pay your rent or mortgage payments first, because keeping a roof over your head is your #1 priority.

Then turn to your most expensive debts or clear up the smaller ones so you can focus on the big Goliath(s).

But be sure to clear the payments for any payday loans and credit cards, because they have the highest interest rates and incur the highest fees.

Utility payments and council tax, and any outstanding debts which are liable to go to court, should be your next priority.

Discretionary spending, paying down your overdraft, or putting money into a savings account should come last on your list.

Following these five simple practical tips can help you manage your debt effectively.

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Always remember that the most difficult part of getting out of debt is getting started!

Over to You

What changes can you make today in order to take control of your financial destiny and subdue those debts?

This post is part of the Debt Management series, you can read all posts in the series here.

















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  1. Thanks for sharing these tips. They are very helpful and sure I will take care of these things to manage my debt.

  2. Some helpful tips here which will come very handy.

  3. Really helpful tips! I always keep an eye on my credit score

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