10 ways to get rid of debt in the New Year

Millions of people suffered debt problems in 2009, and redundancy and unemployment left many families on the breadline.  By forward planning, you can make sure 2010 is a much better one financially for you and your family. Here are ten tips to help you get rid of debt in the New Year and save money:

1. Always plan for a rainy day

Nobody knows what is going to happen in the future, and no matter how secure you feel in your job at the moment, or however comfortable your life is, things can and do change very quickly.  Always be aware of the threat of redundancy and never rest on your laurels, even if you run a successful business. Find out what your redundancy package would include, and if it is very little, or nothing at all, consider a payment protection plan, which will cover you against accident, sickness or unemployment, and will cover your earnings if you are unable to work. Take your time to shop around and don´t accept the first payment protection plan you enquire about. Another way to save for a rainy day is to put some cash away in an instant-access savings account to cover you and your family should you suffer redundancy.

2. Save now for a sound future

If you already have cash in an instant-access account, you could arrange to tie up any additional savings for longer in fixed rate bonds. These bonds can offer a higher rate of interest than most instant access accounts and you can get interest of 3%, rising to 5% if you don´t touch the cash for 5 years. It is worth noting, however, that you will only get the advertised rate of interest if you don´t touch your money for the advertised period of time, so if you are likely to want to delve into your account, this is not a worthwhile saving method for you.

3. Tax free ISA allowance

If you don´t want to tie up your savings, or if you feel unable to put your savings in a long term account, but would lie to earn a better rate than with an instant access account, use your annual tax-free ISA allowance. You can already save up to £3,600 a year in cash savings, which rises to £5,100 on 6th April 2010. While saving with an ISA, you are not taxed on your interest, so if you would normally save anyway, you should take advantage of this

4. Budgets work

As much as you may groan when the word ´budget´ is mentioned, working out a budget can really sort out your finances, and starting in January, you can take the first step to a debt free New Year in 2010. By arranging a budget now, you can plan for the future and even have more disposable cash at your fingertips. Keep a spending diary and write down a list of your income and expenditure each month. Work out where your money is going and where you can reduce your outgoings. Stick to a strict budget each month for grocery items and essential spending and anything you save, put away for a rainy day or pay your debts off with it.

5. Change credit card providers

If you have credit card debts, the first thing you need to do in 2010 is assess how much you are paying and try to get rid of your debt quicker. Minimum payments will mean it could take years to pay off your debts so try to increase the amount you pay off each month. If you are unable to pay off your credit card debts, contact a regulated debt management company who will give you free information about a debt management plan or an IVA (Individual Voluntary Arrangement). If you want to reduce your debt or improve the interest rates you are being charged, try to switch to a 0% balance transfer card, which will give you some breathing space.

6. Rent a room scheme

You can use a spare room at home to make money from rental income. By taking in a lodger you can make a decent amount of money, and the Government even runs a Rent a Room Scheme, which allows people to earn up to £4,250 a year tax-free from taking in a lodger. If you have a parking space that you hardly ever use, this could also be rented out for a decent sum, particularly if it is close to the city centre.

7. Compare prices for insurance

When your annual car insurance policy or home insurance is up for renewal, shop around for a better deal before you agree to renew with your current insurer. Comparison websites can help find you cheaper car and home insurance at the click of a button, and many insurers benefit from loyal customers continually renewing policies without looking for cheaper deals online. A month before your policy is due for renewal, take your time to look around for a cheaper deal.

8. Overpay your mortgage and save thousands

If you have some spare cash, overpay your mortgage. This can not only save thousands of pounds in saved interest, but it can also reduce years off your mortgage term. Overpaying works because, by paying more you reduce your overall debt, thus pay less interest each month as the loan reduces. This can result in you paying much less and also take years off your mortgage term.

9.  Investing for the future

Investing may not suit everyone, as it can be complicated and risky, but it can also be a very successful way to make money over the long term. If you are planning to invest in the stock market, see it as a long term investment over at least 5 years, as you could be disappointed if you are expecting a get rich quick scheme. Take advice before you plunge, headlong into the stock exchange, but a good starter vehicle is a unit trust, which will add your investment to other people´s, and spread it widely over a range of shares. This way you spread the buying and selling fees, along with the risk.

10. Getting on the property ladder

Getting on the property ladder has not been easy over the past three years, as banks granted far less mortgages and loans, and house prices were far too high for first-time buyers to afford. Property, of course, can be a useful long-term investment, as long as you can afford to hang on to it if prices drop. Long-term property investors have been very successful, but property should be viewed as part of your pension and not a complete replacement for it.

If you are struggling with your finances, there are plenty of ways to get out of debt. If you have serious credit card debts or mortgage arrears, contact a regulated debt help company whose advisers can help you get your finances back on track. You may benefit from applying for a debt management plan or an IVA (Individual Voluntary Arrangement).