Five ways to destroy your debt!

If your credit card bills and debts are getting you down it's time to make a stand - here are five easy ways to start

Debt. It's a horrible word but nearly all of us are in it to some extent.

Of course, if the only debt you have is your mortgage that's great. But even the most seemingly well-off tend to have outstanding balances on credit cards that tick on from month to month, or an overdraft they just can't shift. And as this debt grows, so of course does the interest payable on it.

The key is to realise you're in debt, and start dealing with it. And it's easy to start - with little steps that can be built up as you progress.

Step one: Snowball your debts

First things first: work out how much you owe. If you've got credit cards, get all of the statements out and list their balances. Now write down how much your overdraft is. And very importantly - make sure you list down the Annual Percentage Rate (APR) payable for each, too (you can find this out from your statements).

Now, have you any other borrowings that need to be included - loans from family/friends?

Once your list is complete, rank them in order with the one with the highest APR first. Reason being that as it has the highest interest rate it is the one growing the fastest. So regardless of how much this debt is, this one must be dealt with first!

Now we need to work out how much money you have left over each month to throw at these debts.

Step two:  Start a spending diary

Now, while all of this is going on you'll need to get a good grip on how much you're spending in order to set up a budget, and the most effective way to do this is to start a spending diary.

Just grab a small notebook and keep it in your bag/pocket for a week (a month would be even better) noting into it every time you spend money. And that's anything - from a latte and sandwich for lunch to a 30p packet of crisps on your way home.

This will give you a true picture of how much you spend - and once you see it in black and white it should help you decide what a worthwhile purchase is and where you could be saving money.

Step three: make a budget

While your spending diary is being completed you can get on with compiling your budget.

Now it's not as scary as it may seem - if you've never budgeted before, it's simply a case of working out how much income you have, against how much your outgoings are. So grab your paperwork and list how much you get per month from salary, benefits and allowances etc.

Now list your rent/mortgage, bills, council tax, childcare costs, and other outgoings. You'll need to work out a reasonable monthly allowance for food shopping, going out and miscellaneous expenses like birthday presents (your spending diary will help here).

And hopefully, when you subtract the outgoings from the income, you're left with some cash (if not, you need to trim some outgoings!). Here's a budgeting calculator from the FSA that might help.

Now we go back to snowballing. If you have, say £300 left over each month (after making sure the minimum payment is being made on each of the other cards) use this as a "snowball" to throw at the most expensive debt. Then, when that one has been cleared, throw that £300 at the next most expensive debt.

As time goes on and the debts start to clear you'll have more and more surplus money each month (as there are fewer minimum payments to be made) so this extra cash can also be thrown at the debt - leaving you with the happy knowledge that your debts are being cleared even faster!

Step four: Transfer your balance to a 0% card

Of course, while you're attacking your debts they are still growing as interest is accruing every day. It can often feel like you're moving two steps forward and one step back.

But one thing you could think about is transferring the balance of one (or maybe more) cards to a 0% card for balance transfers. This would mean it will stop accruing interest for up to 16 months (if you chose the Virgin Money card). So you'd get over a year's worth of breathing space to save up enough money to clear (or mostly clear) that debt.

Of course, you'll need to have a pretty good credit history to be able to take out a 0% card - so before applying (and creating yet another footprint on your account) apply for a copy of your credit report - it should cost as little as £2 (or you can apply for a free copy from Experian).

Step five: Start to save

Once all of your debts are paid off you can think about saving - and provide yourself with an emergency fund so you never get in debt again. Hurrah!

So don't get used to the extra money each month - set up a direct debit so that hard earned dosh goes into a Cash ISA or savings account instead.

You can boost your coffers by examining your budget and thinking how you could trim your expenses a little each month. Check out Frugal Food to see how you could save on your food shopping and our moneysaving tips articles to learn how to make your pound go further.

Once you've got into the savings habit you may want to take things a little further and start saving a little each month in separate accounts to cover different things (e.g. a car account for potential garage bills, a holiday account for next year's trips, a pet account if you're not keen on paying for pet insurance).

Plus if you can put a little by for your car/home insurance bill you'll have enough to take out an annual policy (and save on having to pay monthly). Get into the savings habit and hopefully you'll never have to spiral into debt again.

Don't forget the treats!

Finally, and this is an important point - once you've cleared your debts don't forget to give yourself a reward. It could be a meal out with friends, a new iPod or a brand new coat - whatever you'd love as a treat. 

Decide upon it early so you have something to aim for. You've worked really hard and deserve something fantastic as a reward for destroying that debt!

Get up to 16 month's breathing space with a 0% card for balance transfers at lovemoney.com

More: National Debtline | Get out of debt with free advice