How to get out of debt: 5 tricks to get back in the black

Far more of us are struggling with mounting debts than we are prepared to let on.

About 13 million people are just about surviving financially, the City regulator reckons — and they need to act now to stop matters getting even worse.

Interest rates are ticking up and inflation remains high, eating away at your spending money.

If you’re staring at a debt mountain, don’t panic: you’re not alone and it’s not too late.

Here are five clever ploys to get back in the black . . .

Use your mortgage to clear other debts

You can save thousands of pounds in interest by clearing expensive credit cards and adding the debt to your home loan.

Most lenders allow you to apply for a so-called further advance. Some might charge the same rate as you’re on currently. You might even get a cheaper deal if mortgage rates have fallen since you last fixed your loan.

Or, you can wait until your fixed rate ends and increase your mortgage when you switch to a new deal.

Adding to your mortgage will increase your monthly payment, so you need to work out if this option really does work out cheaper. There might also be mortgage and legal fees to pay too, so factor these in.

As an example, take someone paying 2.26 per cent (average fixed rate) on a £150,000 mortgage with 15 years to run, who wants to clear £15,000 of credit card debt accruing 18.9 per cent interest (average card rate).

If they paid back the minimum £375 a month on their credit card it would take 39 years to pay off. They would have shelled out £20,643 in interest.

However, if they added their £15,000 credit card debt to their mortgage at 2.26 per cent they would pay an extra £2,699 in interest over the remaining 15 years of their home loan. Overall, they’d save £17,944 in interest.

Growing crisis: About 13 million people are just about surviving financially, the City regulator reckons — and they need to act now to stop matters getting even worse

Negotiate a better deal with your bank

If you’re struggling to keep up the repayments on loans and credit cards, contact your provider.

You might be able to negotiate a lower rate or shrink your payments if you’re unemployed or off work sick.

This will make your debts more manageable and give you some time to get back onto your feet.

When you approach your bank or card provider they will ask you to fill out an expenditure form ,setting out how much you spend on your mortgage, other debts and food.

Be honest or you might not get the help you need. They’ll then take this into account when working out a more reasonable repayment plan.

Most mortgage lenders allow you to apply for a so-called further advance. You might even get a cheaper deal if mortgage rates have fallen

Stuart Carmichael, of charity Debt Support Trust, says: ‘Don’t be afraid to contact your bank. The worst thing you can do is sit by and get into more trouble.

‘Most people don’t realise this but you can often cut a better deal for yourself if you’re struggling.’

Some banks may put a negative mark on your credit file if you ask for your payments to shrink.

This could affect your chances of getting credit in the future, so it’s worth checking with the bank before agreeing to any new deal.

Switch your debts to a 0 per cent credit card

Banks charge up to 20 per cent interest to people who are constantly overdrawn. That means paying up to £400 a year in interest on a £2,000 overdraft.

You can instantly avoid paying these fees by transferring your overdraft debt to a 0 per cent credit card. MBNA, Sainsbury’s, Virgin Money and Tesco offer 0 per cent interest on balance transfers for up to 39 months.

This means you can work on paying down the capital without worrying about having to find interest on top.

But beware — there are usually fees for doing this.

For example, MBNA charges 1.99 per cent, costing you £298.50 to transfer £15,000.

You will need to pay off the debt when the 39 months are up — or switch to a new deal — otherwise you’ll face a stinging rate of interest.

Avoid overdraft fees: MBNA, Sainsbury’s, Virgin Money and Tesco offer 0 per cent interest on balance transfers for up to 39 months

Boost your income tax-free

Another way to claw your way out of debt is to raise your income.

If you have a spare room you’re willing to let out, you can make up to £7,500 a year — or £3,750 if you’re a couple — tax free.

The Rent A Room scheme is even open to tenants, although check with your landlord first.

If you decide to charge more than £7,500 a year in rent, you need to fill out a tax return.

Tax will be levied on the profits you make after first deducting expenses, such as water and electricity bills.

If you don’t want to rent out a room in your home, you can still make up to £1,000 a year tax-free from a hobby or start-up business — selling goods on eBay, baking cakes or selling home-made crafts, for example.

Save your way out of debt

The best way to get out of debt is to save your money rather than spending it.

Set up a regular savings account or transfer money into an easy access account every month and you’ll soon build up a decent nest egg that you can use to shrink your debts.

There are some decent regular savings accounts out there – for example, Nationwide and First Direct offer 5 per cent if you hold a current account with them. You can put away up to £250 a month.

If you don’t know how much to put aside, or you’re worried you’ll be tempted to skip a month or two, you could try an automatic savings app.

Chip, which is available in iPhone and Android devices, connects to your current account and tracks your spending.

It uses this information to calculate how much you can afford to save and then automatically puts it into an easy access account for you.

You start off being paid 0 per cent on your savings, but you get 1 per cent for every person you persuade to sign up, to a maximum of 5 per cent.

p.thomas@dailymail.co.uk