5 ways to spend less and pay off debt

How to spend less and pay off debt

Now that you have got yourself into the mindset of dealing with your Christmas Debt, it is time to work out how to pay off your debt as quickly as possible.

Credit card debt is expensive, it has high-interest charges which mean that you need to get the amount you have borrowed, paid off as quickly as possible.  Always prioritise your debt and pay off the balances with the highest interest rates first.

1. Set an emergency budget

In business when there is a crisis, we tend to set an emergency budget. This is a scenario where I would say an emergency budget was ideal.

Don’t worry if you don’t have a budget, you can set an emergency one now.  It is vital that you get a picture of what you are going to spend in January.

A fancy planner or template is not needed, just a pen and a piece of paper will do for now.  I want you to sit down and write out everything you expect to spend in January.  Be honest with yourself, and do not leave anything out.  If you are not sure what you are expecting, look at your bank statement from last January.  This will give you an indication of your spending habits for the month.

2. Delay some non-essential spending

The next thing I want you to do is to review your outgoings.  Ask yourself if there is anything which you do not need to spend? If you are a sucker for the January sales (like I used to be), ask yourself if buying the pair of shoes or dress is going to get you to your goal to pay off debt.

If a lot of your spending is impulse buys, like lunch break shopping (you know what I mean!) then work out some strategies to kick these habits for January.  Remember our priority is to pay off our debt as fast as possible to avoid those huge interest charges which will be coming.

Now you know what you are going to not spend, make sure that cash saved is immediately diverted to your credit card bill.  Don’t make all of these great savings and then spend them on something else.

3. Look for extra cash

With our goal of paying off debt in mind, seek out any extra cash you can legally find.

If you took part in the 10 Day Micro Savings Challenge in November, it might be a good time to start to revisit those steps to see what extra cash you can find.

One of the quickest ways to get some extra cash is to sell some of your unwanted items.  This could be (eek) unwanted Christmas gifts, last season’s clothes, excess furniture or children’s toys and equipment.  Have a look in your spare room or garage, I guarantee there is a few hundred pounds worth of stuff lying around.

Now if you think that it is not worth selling on eBay or Facebook, I can promise you that it is.  If you don’t know where to start have a look at our guide to Selling Second-hand Items.

If you get some extra cash together, make sure it is immediately paid off your credit card balance. There is no point doing all this hard work if you are not going to get the benefit of it against your balance.

4. Check if you are eligible for a mortgage holiday

If you have exhausted all other options to raise some extra cash you might be eligible for a mortgage holiday.

This is where (with the agreement of your mortgage provider), you delay or defer some mortgage repayments. Now this isn’t the best strategy if you have other options. Please always use this as a last resort.

Chances are the interest rate on your mortgage is a lot less than your credit card.  You may be eligible for a mortgage holiday where you could miss a payment in January to divert the cash to your credit card balance (as this is more expensive debt).  A lot of banks are offering this as part of the Coronavirus measures, they have in place.

If you go down this route, please check with your mortgage provider before you make this decision.

5. Check if you are missing out on any benefits

If you have previously not been eligible for benefits, you may have not checked your entitlements recently.  A lot of people’s circumstances have changed significantly in 2020 and you might not realise what you are entitled to.  Go to Benefits Calculator: What am I entitled to – MoneySavingExpert to see what you are entitled to.

By now you should have identified some ways in which you can get some lump sums of cash together.  You have done this by looking at where you can reduce your spending, by getting some extra cash by selling off your unwanted items and checking your entitlements to a mortgage holiday and benefits.

This article is the second in our series on How to Pay for Christmas in 2021.  If you missed the first article you can read it here.

If you are struggling with debt in the UK you can contact Citizens Advice for free confidential advice.