Budgeting - manage your money & shrink your debt

If you're able to meet the monthly payments towards your debts then you may not need to rely on a formal debt solution (like bankruptcy or an Individual Voluntary Arrangement) to clear your debts. Careful budgeting could be all you need to get your finances on track and reduce your debts.

In this guide to budgeting, we look at ways to get your finances in shape and deal with smaller debts by maximising your income and minimising your spending.

Budgeting is essential - no matter what your financial situation. Working out your budget will show you what sort of state your finances are in - how much you're spending, how much disposable income you have, how much you owe and how much you can afford to repay.  When you've worked this out, you will have your financial statement, which is essential if you are in debt and want to negotiate with your creditors.

Use our free budget templates to help you get a clear view of your finances.

It sounds obvious, but spending less can be hard and changing habits you've had for years can take some time. Here are some ideas to help you reduce your spending without making too much of an impact on your quality of life:

• Use cash - By using cash instead of cards you will have a better idea of how much money passes through your hands. Try withdrawing a week's worth of cash at the start of the week. You'll always know how much money you have left and you'll be able to change your spending habits if you start to run out of money.
• Think twice - Shopping is often about more than just needs. So before you buy, stop and ask yourself: "Do I need this, or do I just want it?"
• Haggle - Haggling can be a fun way to spend less. Remember that it's always okay to try haggling because the seller can always say no.
• Save on luxuries - Let's assume that your morning cappuccino costs about £2.50. Over the course of a year you'll spend £912.50. Do you buy your lunch at work? If you spend £4 a day, that adds up to £1120 per year. By making small adjustments, like making coffee and lunches at home, you'll save enough money to make a significant difference to your debt.

Switching, whether it's your utilities or your credit card, is one of the easiest ways to save money. Many households are spending hundreds of pounds a month unnecessarily. It doesn't take long to switch to the best deals, the best tariffs or the best bundle of services.

• Reduce your gas and electricity bills - Switching gas and electricity suppliers is quick and easy. You could save as much as £458 by switching - a significant sum when you're watching the pennies. Use the uSwitch calculator to compare suppliers and find the best energy tariff for you.
• Water - While you can't switch your water provider, you may be able to switch to a water meter. A water meter may be cheaper than paying the fixed water rates. Use the uSwitch calculator to work out if a water meter could save you money. As a general rule, if you have fewer people than you have bedrooms then a water meter might benefit you.
• Credit cards - If you're struggling to clear credit card debts, consider moving the balance to a 0% balance transfer card. Use the uSwitch calculator to work out how much money you could save with a credit card balance transfer and the best card for your circumstances. Even if you don't have an existing balance, you may be able to save money or get bonuses just by switching to a different card. Reward cards offer cash, vouchers or Airmiles when you spend on the card. If you want to use a credit card to spread the cost of a particular purchase, consider switching to a 0% purchase card. Because people with poor credit ratings will not be accepted for some credit cards, you may want to check your credit rating before applying for a new credit card. Experian offers a free 30-day trial of Credit Expert. Check your credit rating now.
• Current (bank) accounts - Finding the right bank account can make a big difference to your finances. You may be paying too much in overdraft interest charges or missing out on rewards and deals that now come bundled with many current accounts. Find the best current account for you.
• Insurance - You may be able to save money by switching your insurance provider. With uSwitch, you can compare a range of insurance products - car, van, house, bike, life, travel and even business insurance to find the best insurance deals.
• Communications - You can also compare a range of communications products to see where you can make savings on your home phone, broadband, mobile etc. Many providers now offer bundled deals, bringing you TV, broadband and your home phone in one package. Find out more about picking a bundle.

As well as making savings by switching service and utility providers and spending less on treats, you should make sure you're earning all the money you're entitled to.

• Tax codes and tax credits  - If your tax code is not right you could be paying too much tax. You may also be entitled to tax credits, depending on your status. Check the Inland Revenue website for information on tax codes and benefits.
• Child maintenance - If you are separated or divorced you may be entitled to child maintenance payments. Contact the Child Support Agency to learn more.
• Overtime or a second job - If you need a temporary income boost, consider working a few additional hours of overtime. A part-time job for evenings or weekends may help you to clear your debts in less time, but try to make sure that you don't overwork yourself.
• Time for a promotion - Are you due a promotion? Or are there opportunities for you to take on fresh challenges at work - challenges that would warrant a pay rise? If you've been in the same job for several years, and can't see any chances for promotion, why not check out the job market? You may find that the fastest way to get a pay rise is to get a new job.
• Earning from your property: lodgers or downshifting - A lodger can seem like an easy way to make money, but you must remember that bringing a new person into your home is a big decision. Downshifting means moving to a smaller or cheaper house. You may need less space than you have, or maybe you can live without your large garden or perhaps you don't need to be so close to the train station - in these cases it's worth considering how much you could save by moving to a smaller or less desirable property.

Many people find that with careful budgeting and by making a few changes to cut their expenses, they can bring their finances under control and start to pay off their debts.

However, this isn't true of everyone, and if you're still struggling to keep up with your repayments then you might want to look at other debt management options, like a Debt Management Plan, a Debt Relief Order or even an IVA.  Our debt help tool can help you find debt help that's right for you - try the debt help tool now.

You can get free expert advice on which option is right for you from charities and organisations, including Credit Action, National Debtline and the Citizen's Advice Bureau.