A lot of people are out there who realise that they owe more money than their affordability only when it is too late. Since you do not have the risk of losing your assets, it does not mean that you will go scot-free if you do not pay off. You will lose your credit points.

A lender may take you to the court to issue a CCJ against you, and then you will have to abide by the court’s decision. Falling into debt is not so surprising at all because most of the borrowers do not notice the hidden risks.

Most of the small loans seem to be easy-dealt debt as you have to pay off the full loan on the due date, but you find it harder to do so and roll over the loan. This adds up your debt, and eventually, you fall into an endless circle of debt. One of the biggest reasons why you fall into a debt spiral is poor cash management. You fail to keep tabs on incomings and outgoings. Well, if you are lumbering with debt, you should consider the following ways to get rid of them:

• Debt prioritisation

If you have fallen into debt or struggling with debt payments, it is clear that you cannot deal with them all together. In this situation, you should prioritise your debt. For instance, try to focus on high-interest debts. Mortgages and auto loans are the most expensive debt, and they are also subject to high risks. If you do not keep up with payments, you can lose your house and car.

Complications mainly arise with small debts as they have to be paid back in full as soon as possible. These debts include credit card bills, payday loans, and no guarantor loans in the UK. Credit card debts, overdrafts and payday loans are notorious for spiralling up your interest payments. Therefore, it makes sense to clear them as soon as possible.

The sooner you pay them off, the more money you will save as interest. When it comes to prioritising debts, you can choose between two methods – debt snowball and debt avalanche – that suit your financial condition. The debt avalanche method is paying off the high-interest debts first, but the other method is called debt snowball, which requires you to make minimum monthly payments.

The debt snowball method is particularly more favourable for you when your budget is tight. Making minimum monthly payments to high-interest debts cannot help you avoid accrued interest on the unpaid balance, but little payments are better than no payments at all.

At the time of choosing the debt payment methods, you should carefully figure out which of the methods will work to your advantage. You will have to carefully analyse the nature of all outstanding debts you have and your current financial condition to decide which debts should be prioritised.

• Debt consolidation

It is not necessary to choose between debt avalanche or debt snowball method every time you struggle with debt payment. These two methods are generally recommended when consolidation is not an option. First, you should try to take out a new personal loan to merge all existing loans. This personal loan is called a consolidation loan.

Consolidation loans will settle all your outstanding dues, so you do not have to fear losing your credit points or handling payments. Now, you will have only one loan to be paid off over time. Manageable monthly instalments will make it affordable. In order to qualify for a consolidation loan, you should have a decent credit score.

However, you can get from a direct lender bad credit loans with guaranteed approval, but it can be difficult to secure. It is likely that your lender does not lend equivalent to your current debts. Interest rates will also be higher. Some lenders might require you to put down security to get the nod for consolidation loans.

This minimises the risk of the lender, and hence, you are highly likely to get money at a lower interest rate. In case you make a default, you will lose your collateral. Remember that most of the lenders do not offer consolidation loans if your credit rating is bad. You should apply for these loans as you start facing difficulty keeping up with debt payments. If you owe too much debt, your lender will hesitate to consolidate your debts. Consolidation is particularly a relevant option when you do not have to borrow more than £5,000.

• Emergency fund

One of the biggest reasons for falling into debt is a lack of emergency cushion. You must have some savings to fall back on in case any unexpected expenses crop up. An emergency can catch you unawares at any time. If you have savings to dip into, you can avoid borrowing money to meet them.

This will help you avoid paying interest. Having an emergency cushion will help save a lot of money in interest. When you have emergency savings, you will stay relaxed and calm as you can dip into your emergency cushion.

If you rely on debt, it is likely that you will fail to clear the dues on time, or chances are another emergency expense crops up, and then you take out a new loan. This will increase the debt amount, and eventually, you will be tied to an inordinate amount of debt. If you want to use savings for your essential expenses, you should try to build them as soon as possible. Try to make it worth three months of living expenses.

The bottom line

If you owe too much debt and it is difficult to keep up with payments, you should try to find ways to deal with them. If you do not owe too much debt, consolidation can come in handy, but this works better only if you have a good credit score. You should try to consolidate your current outstanding loans as soon as you begin to face difficulty with payments.

However, consolidation is not always an option. In that case, you should choose between debt avalanche or debt snowball methods. It depends on your financial circumstances whether you will prioritise high-interest debts or you will make minimum payments to them while paying off smaller debts.

Many people do not realise that they can avoid this situation if they build an emergency cushion. You can fall back on your savings instead of rushing to lenders to borrow money. This is the best way to save money in interest payments and avoid the risk of falling into debt.