Budgeting - 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 debt

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.

Work out your budget

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.

Save money by spending less

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.

Switch and save

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.

• Credit cards - If you're struggling to clear credit card debts, consider moving the balance to a 0% balance transfer card.

• Loans - Using a debt consolidation loan could get you a better interest rate for your debts and you'll only have the one repayment to make.

• Reduce your gas and electricity bills - Switching gas and electricity suppliers is quick and easy. You could save hundreds by switching. Use the Uswitch calculator to compare suppliers and find the best energy tariff for you.