I’m a debt expert – how your personality can be key to finding the best way to get out of the red | The Sun
HOUSEHOLDS may be feeling the pinch this month after forking out for a costly Christmas which hit the wallet hard.
But if you’re worried about being pushed into the red as food and fuel bills continue to spiral, there are plenty of steps you can take to pay down what you owe.
When it comes to dealing with your debts and taking back control, the best approach may be down to your personality.
We spoke to Alice Haine, debt expert and personal finance analyst at Bestinvest, about how your character traits could determine the method most likely to bring you success.
She told The Sun: “If you’ve fallen into heavy debt and don’t know how to tackle it, the first step is to face up to your situation and admit there is a problem.
"Next you need to develop a plan.
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"While there are lots of ways to go about it, your personality could be the key to clearing your liabilities once and for all."
If you’re frugal
For those who are frugal and who always like to make a saving where they can, the “avalanche” method could be effective, according to Alice.
Here, your aim is to clear the highest-interest debt first.
Once you’ve done that, you then focus on the debt with the next most expensive rate of interest, clearing each liability one by one, until they are all gone.
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“This approach reduces the overall cost of your debts,” said Alice.
“This will please those who like to watch the pennies, as they won’t feel they’ve been ripped off by costly interest charges.”
Don’t forget, you will still need to make minimum payments on all your other liabilities while you work to clear the most expensive debt.
If you’re free-spirited
For the more free-spirited, who might have more trouble sticking to a plan, Alice suggests the “snowball” approach might be a better bet.
With this method, you target the smallest debt first and the biggest debt last.
“The theory is that the smaller balances will be easier to clear,” she said.
“This will supply that much-needed psychological boost for those who need encouragement to stay on track.”
At the same time, the quick wins along the way as each credit card or loan is paid off, will act as an incentive to help you move on to the next.
If you’re an overspender
For the overspenders who like to live life on the edge, spending freely on whatever they want, whenever they want, the “50-30-20 rule” could work well.
“With this method, you direct 50 per cent of your income towards essential living costs, such as household bills, food and transport to work,” said Alice.
“A further 30 per cent is then directed to your ‘wants’ such as leisure activities, shopping trips, gym memberships and holidays.
"The final 20 per cent should be focused on paying off debt, saving for short and medium-term goals, and investing for the long-term.”
Another tip for overspenders is to find ways to make it harder to access your cards.
“One extreme measure is to literally pop your credit card in a plastic box filled with water and put it in the freezer,” said Alice.
“An easier option is to request a ‘pause’ on new transactions with your card provider.”
If you’re a worrier
For the worrier who feels anxious about being in the red, a “quick fix” in the form of a 0 per cent balance transfer might offer the respite needed.
“If you’re concerned about having debts on a card with high interest charges, one of these pieces of plastic will allow you to focus on debt clearance, rather than the amount added in interest,” said Alice.
“You can currently find deals offering as long as 34 months at 0 per cent.
"The costly interest charges are immediately removed, instantly reducing stress and offering breathing space to clear debt and get back in the black at your own pace.”
That said, you must remain diligent about making at least the minimum payment each month, and ideally, more than this.
You must also aim to clear the entire debt within the 0 per cent period.
And don’t forget that cards often levy a balance transfer fee which needs to be factored into your calculations.
If you’re an avoider
For those who run for the hills at the first sign of trouble, the only solution is to face up to the problem, according to Alice.
“If you think you risk defaulting on a repayment some time soon, or if you’ve already missed something, ghosting creditors is the worst strategy of all,” she said.
“Instead, you need to be proactive and ask your lender for help.
"This approach is much more likely to result in you securing favourable repayment terms, such as reduced payments, payment holidays, or an affordable repayment plan.”
If you’re stressed or depressed
For the stressed or depressed for whom a situation has become overwhelming, the best option is to seek support.
“Once debts have been left to fester and compound into an unmanageable state, it might feel as though there is nothing to be done,” said Alice.
“But there is still help on hand.”
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She recommends contacting the likes of Citizens Advice and StepChange which offer free debt advice to get you back on track.
These organisations can also negotiate with your creditors on your behalf to bring down the overall cost of your debt.
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