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New Year, New Financial You!

Posted 02 January 2016 by Shelley Bowers

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Start the New Year right with a complete financial check-up with our help.

It’s the New Year and a great time to give your finances a check-up. Getting to grips with your money now could save you problems later down the line. And it’s not hard, just follow our two-part guide and you’re finances will soon be fighting fit for 2016.

So to begin with – do we all know what problem debt is?

What is problem debt?

We think it’s important to start off with some kind of definition of what problem debt is. Debt itself is not a problem. As long as you can repay what you are meant to repay, when you’re meant to repay it, there’s nothing wrong. Although we’d always encourage you to borrow responsibly - there really is no issue if you’re able to easily afford the repayments you need to make towards what you owe.

However, that debt starts to become a problem when you begin to pay late, part pay or miss your monthly repayments altogether.  Alternatively, you may find that you are able to keep up with your repayments, but only at the expense of cutting back on your gas and electricity use, or on food, or getting behind with other essential bills – from council tax to the rent.  If this sounds like you then you’ve problem got a debt problem.

Missing repayments will lead to a series of letters, phone calls and emails asking you to make up the missed amounts. When this starts to happen on a regular basis – one missed or late payment is not a big deal – you are at risk of getting into problem debt. If you don’t do something to resolve this now, it can lead to defaults being put on your credit file.

You may not think that defaults on your credit history are a big deal now, as you’re not in a position to borrow anything further at this time. But, if you do want to borrow in the future, you may find it more difficult, or more expensive, than it would have been if you had a good credit score.

If this sounds like the position you’re already finding yourself in, you may be too far along the problem road for the ideas in this blog to help you. Instead, you may find it a great help to speak to someone about what you can do to start sorting out your problem debt. There are all kinds of options available and a chat with one of our trained advisors is a step in the right direction.

 

Find my solution

If you are not yet at the stage of needing a formal debt solution, this is what you should be doing to keep yourself out of one.

Budget

A great place to start is by creating a really good budget. This means you’ll know exactly what’s coming into and going out of your household. If you’re not sure how to do this, it’s really quite simple. All you need to do is get yourself a piece of paper, or a laptop if you’re more electronically minded, and draw two columns – one for the money that comes into and the other for money that goes out of the household.

Now, write down every last penny you receive each month in the income column. Include all forms of income, including wages, benefits, allowances and any other money you get. Now in the other column, do the same, but for everything you pay out for. No matter how small or insignificant it may seem, or who you owe it to, note it down if you pay for it. So, you should include that £100 your Mum or best mate lent you, if they expect you to pay it back.  Don’t forget to include an allowance for occasional costs that you might not have paid last month, such as birthday treats.

When you get to the end of this process, you subtract your spending from your income and the figure you are left with is what’s called your disposable income. If you don’t have as much left as your budget says you should have, it’s maybe time to have a look at your daily spending to see where your cash is going. A spending diary is a good way to do that.

Spending Diary

If you need to work out where your money is going, a spending diary is the ideal solution. If you don’t know what a spending diary is, you can find out all about it here. But, in brief, it’s a way of tracking what you spend every day, ideally for a period of at least a month but if possible for three months, then you’ll have a good idea of what your budget really is.  

So, first things first – a notepad! You can use a paper one, but remember that you’re going to need to take it with you when you go out and about, so that you can note things down as you buy them. Or, if you have a smartphone, you can use and electronic notepad that’s easy and free to install.  Have a look at these apps:

Colour Notepad Notes To Do or Evernote – if you’re using Android

Mental Note Lite or IDo Notepad  – if you use Apple

 

Now you’re ready! Each time you go out, remember to take your diary with you and when you spend something note it down right there and then. If you wait until you get home to note things down, you will almost certainly forget something. And when we say note down everything you spend, we mean every last penny.  

And, that'll do for today. Digest all you've read and then come back tomorrow for part two. 

 

by Shelley Bowers

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.