Seven steps to brighter borrowing

Updated: Apr 1

This guide gives you seven practical steps to help reduce the worry of debt and take control of your borrowing.

Your seven steps to brighter borrowing

1. Start NOW

The sooner you act, the better your situation will be.  Even if you feel you can’t pay all of the bills each week or month, it’s essential not to let borrowing mount up. Not only will you pay less overall, you’ll worry less about missed payments, never ending balances and their consequences on your mental health, physical wellbeing and longer-term finances.

2. Get forensic with your finances

Get a pen and paper or spreadsheet and itemise every single outgoing. Use your bank account and credit card statements to help you and make sure you know every balance on every bank account, credit card, loan and outstanding bill. Make sure you know exactly what you have to pay, when and how much it is costing you, and how much you have left afterwards.

Check out The Money Advice Service’s easy to use budget planner tool for further help.

3. Be ruthless with your spending

Think carefully about what you spend, what you can reduce by tightening your belt, shopping differently, forgoing small pleasures. It’s tempting to buy things that make you feel better or help you escape for a moment, but every penny counts when managing your borrowing. The more you can pay on debt, the better your financial situation will be more quickly. Short term pain equals long term gain. 

4. Switch to cheaper deals on things like utilities, broadband and TV services

Switching provider can help you reduce your outgoings. Check price comparison sites such as U-switch, which claims that you could save up to £479* a year from switching utility providers. Saving nearly £40 per month might not sound a lot but if used wisely it can help you pay off your debt sooner.

5. Deal with your debt head on

According to The Money Charity, the average person has credit card debt of £2,595. If you owe £2,595 at an average 24.7% APR, the minimum payment is around £75 in the first month, reducing each month as the balance comes down. 

If you only make the minimum payment each month, it's going to cost you £4,604 in interest and take 27 years and 3 months to pay off.

Paying the minimum can be a useful option to help with available cash, but it will take you longer and cost you more to clear your balance. If you were to pay just an extra £20 a month off this same credit card, you would save £2,860 in interest and pay it off 20 years and 4 months sooner.

And if you simply fixed your payments at £75, so the same as that first month, you would pay off the debt in just 4 years and 8 months and save £3006 in interest. That’s an incredible 22 years and 7 months longer without that debt.

6. Pay your most expensive debts first

Make sure you understand APRs and interest and the true cost overall. By paying as much as possible to your most expensive debts first, you avoid building up interest upon interest every month.

7. Don’t hide from your borrowing

Many people are worried they will default on credit cards and loans but almost every mainstream provider is offering help with things like payment holidays, waiving of late fees and so on. 

If you need breathing space, your very first port of call must be to see what your current providers can do to ease your burden in the very short term. Remember though, this may well increase your debt so only do this for as long as is necessary and keep focused on paying back as much as you can, a soon as you can.

Above all, remember that most things are not forever and that by taking control, you will emerge in much better financial health, even if it is worrying and painful right now.

You may wish to contact the following organisations for free, independent and confidential advice:

AdviceUK 0300 777 0107

StepChange Debt Charity 0800 138 1111

Citizens Advice (England & Wales) England: 08444 111 444 Wales: 08444 772020

Money Advice Scotland 0141 572 0237

Citizens Advice (Scotland) 0131 550 1000

National Debtline 0808 808 4000

Citizens Advice (Northern Ireland)

The Money Advice Service 0800 138 7777

To make sure you always Borrow Well, soon ilumoni will be able to do this for you, helping you to see your borrowing in a new light, reduce the interest you pay and clear your debt faster. If you are interested in hearing more about our app, register and we’ll keep you up to date with all of our latest developments. The app is completely free, completely secure and you are under no obligation to share or do anything you don’t want to.

*correct at the time of writing

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