The Moneywise Debt Workout

Getting on top of your finances can be a daunting task, but with a clear plan you can stick to, it's possible to clear your debts and get the sensible money habits that will set you up for life.

The most important thing to do is "set yourself a money goal," says Nancy Baynes from the Money Advice Service. Set yourself a time period and what you want to achieve and then work towards that aim.

Week 1 - Take stock

The first step to financial freedom is knowing exactly how much you owe and how much money you have. So sit down and go through your various savings accounts, current account, loans and credit cards and work out your financial situation.

A simple spreadsheet showing what you have on one side and what you owe on the other can be really helpful.

Week 2 - Save or spend?

Once you have a clear grasp of your situation, you need to work out whether to hold on to any savings that you have or use that money to clear your debts.

It is highly unlikely you are earning more interest on your savings than you are paying on your debt, so generally you will save money in the long run if you use your savings to clear your debts.

Week 3 - Reduce your costs

Now you've cleared what debts you can, it is time to reduce the interest on any remaining money you owe. If your debts are on a credit card, move them on to a 0% balance transfer card.

These cards offer you an interest-free period in which to clear your debt in return for a small one-off transfer fee (usually around 1 to 3%).

You may also be able to use a 0% money transfer credit card to eliminate interest on any outstanding loans or overdrafts. These cards work just like a balance transfer card except you can move money from the card into your bank account to clear overdrafts and loans.

Week 4 - Set affordable repayments

Once your debt is as small as you can make it right now, and earning as little interest as possible, it's time to start paying it off in manageable chunks.

The best way to clear it is to work out when you want to have paid off your debts by – say, when the 0% interest deal runs out, or by this time next year – then divide your debt by the number of months before your deadline, giving you your monthly payment amount. If that is more than you can afford, extend your deadline by a few months until you reach an affordable monthly sum.

Just be aware that if you can't clear your debt on a 0% credit card before the interest-free deal runs out, you will need to move the debt to another 0% card to avoid hefty interest charges.

Once you've decided how much you can afford to pay off each month, set up a direct debit so your debts will shrink without you having to remember to
make a payment.

Week 5 - Seek expert advice

If after this month of focusing on your finances, you realise your debts are so large you can't afford the minimum monthly repayments on them, it is time to get help. "The sooner you seek advice the better," says Ian Williams, director of communications at

"Once you have got a repayment plan in place with your lenders, you will have enough money to live on and they will stop chasing you for repayment." You can find a list of reputable debt advisors on the Money Advice Service website (

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