Snowballing is a great way to clear your debts. But what do you do when you can’t afford the snowball method?
After my recent guest post which looked the best way to clear your debt, Sara Williams suggested another article that looks at your options if snowballing won’t work for you.
Sara runs the Debt Camel website, which looks at everything to do with debt, from mortgages to bankruptcy.
Whether you over pay the smallest debt or the one with the highest interest, your debt will be dropping and your credit rating will be improving every month.
But what if you don’t have enough money to make the minimum payments to your debts?
In that case you can’t overpay any of them and snowballing isn’t an option for you.
I’m talking in this post about “consumer debts” such as credit cards, catalogs and loans.
If you have rent or mortgage arrears, you can’t pay the tax man or your local council or court fines, or your utilities bills are unmanageable, then you need proper debt advice.
With these sorts of priority debts, going to your local Citizens Advice is usually a good option.
Get a 0% credit card?
Often people who are good with money suggest you get a 0% balance transfer credit card in this situation.
But you may not be able to get one if you have borrowed too much for your income.
And the repayments on a 0% card are often much the same as on a normal interest charging card, which means it doesn’t reduce your cash flow problems.
So although a 0% card will let someone snowballing pay off debt quicker, they often aren’t much help when you are already in a mess.
A consolidation loan can help in theory, because it gives you lower monthly payments.
And it has the side benefit that it may your finances feel simpler if you are paying a single loan rather than several credit cards.
If you have a lot of card debt though, it can be hard to get a big enough loan to clear it.
Remember the old joke that a bank is somewhere that will lend you money when you don’t need it?
It’s not very funny when you are trying to tackle your debts.
If you can get a consolidation loan, you MUST close down the credit cards you are clearing.
Keep one with a small credit limit for emergencies but you have to repay that in full every month, no exceptions.
If you don’t, then the chances are that you will be tempted to spend on the cards again and in a year or two you will be in a worse mess – high credit card balances and a large loan as well.
And never consolidate unless the interest rate is really good. A bank loan at 5% or less is great.
A “bad credit” loan at 30% or more is going to be a millstone around your neck for years.
If this is the only option you can find, talk to a debt adviser before signing up for this.
Arrangements With Your Creditors
Is it the interest that is killing you at the moment?
If that interest was frozen, would you be able to start really clearing your debts?
If this sounds like your situation, then you probably need an arrangement with your creditors.
This will harm your credit record. There isn’t a way around that.
If you don’t have enough money to make the normal monthly repayments then there aren’t any magic options that will protect your credit record.
There are two ways to set up arrangements to pay. In both the lenders are offered a lower amount than the normal minimum and asked to freeze interest and not add late or missed payment charges.
The first option is the DIY approach.
You contact each lender individually, by phone, email or sending a letter and offer them an amount you can afford each month and ask them to freeze interest.
This may sound scary, but lenders are used to it!
At any time there are literally hundreds of thousands of people in Britain with arrangements to pay with their lenders.
I’ve described how to set up these lower payments in Is an arrangement to pay right for you?
It’s really important that you don’t offer more than you can afford, otherwise you will just have phone up again in a month or two and ask to reduce it.
If you have a lot of creditors or the idea of talking to them makes you feel very anxious, go for the second option: a Debt Management Plan (DMP).
Debt Management Plan (DMP)
These are set up by a firm – so you just talk to the DMP firm and then they do all the talking to your creditors.
You make one monthly payment to the DMP firm who divides it up between your creditors, so the ones you owe the most to get the largest amount.
My article Are you worried about starting a DMP? looks at many of the common questions people have about debt management.
The biggest DMP firm in Britain is StepChange – and they don’t charge you any fees, so they are a great choice.
They will also be able to tell you if a DMP isn’t right and if you have a better debt option.
Are Your Debts Too Large For This?
If getting the interest frozen on your debts won’t be enough to repay them in a reasonable time, you should get some expert help.
What is “reasonable” here depends on you and how your situation may change!
If your nursery school fees are ending in a couple of years, then it may be fine to pay a really low amount now, knowing things will get a lot better then.
But if you are retiring in a couple of years then your income is going to reduce so making low payments now is not going to work well.
When someone has a long term debt problem, that isn’t going to get a lot better, there are a range of insolvency options that can help.
You may not want to go bankrupt, but staggering on for another few years and then having to is a worse choice then facing the facts now.
And there are other possibilities such as a Debt Relief Order (DRO) that you may not have heard of.
Where To Get Help
Don’t google for debt advice! If you do you will end up talking to firms that have paid for adverts and links that help them get high up on the Google pages.
That means they are planning on making a lot of money out of you, even if they say they are “free”.
There is one debt solution that makes a firm several thousand pounds and that is what most of those website will be suggesting – even if there are much better alternatives for you.
I suggest you talk to Citizens Advice if you would like to meet the adviser, or StepChange if you would prefer to talk on the phone.
Both of those organisations can give advice on the full range of your debt options.
And they are free, confidential and non-judgmental.
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Last Updated on 4th April 2023 by Emma