Millions of households are facing unprecedented financial difficulties as a result of the cost-of-living crisis that has gripped the UK. Grocery shops are more expensive than ever, and energy costs have many refusing to switch their boiler on even as temperatures drop.
This is a critical time for those who have trouble with managing their money, and the worst possible time to get further into debt. What can you do to reduce your debt burden and better manage your money overall?
Four Financial Tips for Avoiding Debt
1. Create an Emergency Fund
The very first thing you should consider for your financial well-being and gain control of your financial situation is not to start paying things off or make specific changes to your spending, but instead to start building an emergency fund. Your emergency fund is your cushion, which will shield you from unexpected costs and emergencies.
Your emergency fund should be between three and six months of your household expenses, to protect you most effectively from financial knocks – including the loss of your job. You don’t need the full value of your emergency fund before you start other debt avoidance tactics, but this is a crucial step to real financial security.
2. Consolidate Existing Debts
If you already have a debt burden, it will be all the harder for you to avoid getting further into it – especially if your spending habits are your leading point of concern regarding debt. As such, removing your debt burden is the most important step in your journey.
Consolidating multiple debts into a single loan enables you to pay your debt off much easier, placing all your debt under one provider and one interest rate. With your different creditors paid off, your credit score may start to improve.
However, even with a well-planned budget, some individuals may find it difficult to overcome their debt. In such cases, deciding to file bankruptcy in Orlando could be a necessary step to regain financial stability and start fresh. While it can be a tough decision, bankruptcy offers a structured way to manage overwhelming debt, providing relief from creditor harassment. Consulting with a knowledgeable bankruptcy attorney can guide you through the process to ensure the best possible outcome.
3. Form a Cohesive Household Budget
With your debt consolidated and a payment plan in place, you now have all the information you need to build an effective budget. Taking into account your income, emergency fund payments and outgoings on debt and household necessities, you can gain a picture of your ‘expendable’ income – and exactly where it is getting spent each month. With this budget, you have the tools to target costs and eliminate them.
4. Do You Need It?
Lastly, there are some simple ways in which you can directly address your spending, particularly when it comes to your grocery shopping or the purchasing of luxury items. Compulsive spending is easy to do, and a great many people do it without being aware they are. How many times have you absent-mindedly picked up a chocolate bar from a vending machine?
By introducing active questions to your shopping habits, you can curb any unnecessary expenditures right at the point of potential expense. When you pick up the chocolate bar, you should ask yourself “Do I really want this?” If the answer isn’t an immediate and enthusiastic “yes”, then you should put it back.
This philosophy naturally applies to bigger luxury purchases but can be more effective if tweaked to work a little differently. If you are taken with the impulse to buy a new device or tech item, your second question after “do I really want this?” should be “will I want this in a month?” If the answer is no, you do not buy the item; if the answer is “yes”, you leave the item anyway. If you genuinely still do want it in a month’s time, then and only then can you buy it!