Top 10 ways to get out of bad debt

Roman Danaev

Finance17 July 2020

Bad debt is scary. It probably seems like an endless downward spiral. But a change of spending habits and managing your finances differently almost always offers a way to break out.

Before long, you might get your financial status back on the right path so effectively that it’s become time to contact us here at Carplus for that long-awaited car loan.

So, here are our top ten tips to help you shrug off the nightmares of those bad debts.

1. Acceptance

Denial is one of the worst reactions to bad debt. As soon as you accept you have it, you can do something about it Accepting and sizing up the problem might be the first step to solving it.

2. Talk to your creditors

If there’s one thing worse than bad debt, it’s not talking to your creditors about it. Talk to them and they have a chance to understand your temporary difficulties. Perhaps they agree to accept reduced payments for a while, or even freeze the interest that’s accumulating. If nothing else, it helps to buy you valuable time.

3. Make a debt management plan (DMP)

All the most successful targets start with a plan. The same goes for managing your bad debts. What are your most critical debts — the mortgage and car finance, are likely to take priority over subscriptions to magazines and gym clubs.

Decide which debts need to be managed first and foremost, then prioritise the rest in a carefully budgeted debt management plan.

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4. Pay off your debts before you start saving

It might sound pretty obvious, but don’t try to save before you’ve paid off your debts:

the interest you are paying on debt far outstrips any you get from savings; and
if you miss a debt repayment — because you’re too busy saving — your credit score takes yet another nosedive.

5. Get a consolidation loan if necessary

If you act quickly before your bad debts have done their worst on your credit rating, and you still have a regular job, you might be able to get a debt consolidation loan.

This does just what it says — it consolidates all of your debts into a single loan, with one rate of interest and one monthly repayment date (so there’s no risk of forgetting to make a payment).

Debt consolidation may prove trickier than it sounds, so always seek out and take the advice of an independent financial adviser (IFA), whose work is regulated by the Financial Conduct Authority (FCA).

6. Avoid loan sharks and the like

When you’re in a tight corner, there are people out there ready to exploit the fact and offer you a loan with no apparent strings attached — except for a huge rate of interest that makes this form of borrowing especially expensive.

You might recognise a loan shark when you meet one, but also watch out for payday loans, which are typically not suitable for longer term borrowing due to the higher rate of interest charged.

The moral to the tale? Only ever go down this particular road as a last resort, when everything else has failed.

7. Switch credit cards

Not only do some credit cards offer lower rates than others, but many have an introductory period of zero-rated credit in order to attract new customers.

Pay particular attention to when that interest-free period ends — typically after 12 or the most 24 months — because you’ll then be hit by high rates of interest again. Be prepared to switch cards on a regular basis, or opt for one that might charge a slightly higher rate but gives you the security of interest rate stability over the longer term.

8. Pay more than the minimum payment on your credit card

Difficult as it might be when you are struggling with bad debts, try to pay off more than the bare minimum of your credit card each month. The minimum payment might seem to be the answer, but extends the period over which you are repaying the balance. And all the time you are paying interest on it.

What’s more, if you do look around for a consolidation loan, the lender may take your ability to repay only the minimum amount on your credit card, to think you a bigger risk.

9. Switch utilities

Switch your gas, electricity and water suppliers and you might save hundreds of pounds over the course of a year. There are many comparison sites online that will find the most cost-effective deal to save you money.

10. Your credit score

By following some of these tips and suggestions you may steadily improve your credit status — try to keep it that way, since it is going to make getting a loan in the future easier, and cheaper too.

11. In the meantime …

It might be a long hard slog overcoming all your bad debt. If you have to buy a new car whilst you’re working away at it, remember that here at Carplus, we are able to arrange bad credit car finance for many in your position.

Your monthly payment
Total charge of credit£3,731.35
Total amount payable£15,731.35
Apply now for your personalised, no-obligation quote

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Must be between £3,000 to £50,000
Your monthly payment
Total charge of credit£0
Total amount payable£0
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