Debt – Almost everyone has had to deal with debt at some point. While many of us borrow money or take loans in good faith, repaying it can sometimes prove a challenge. Since the last thing anyone wants is to stay in debt or have a bad credit score, it is best to avoid debts spiraling out of control. Below are a few tips and ways to get out of debt and possibly stay debt-free.
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Note Down Everything You Owe
This, according to financial experts, is the first step to regaining control of your finances. It involves creating a list of every debt you have and interest to be paid. Having these in writing makes it easier to plan your finances and identify loans that need to be paid urgently and low-interest ones. Do not let the size of your debt scare you, but rather serve as a motivator to pay off or identify a viable rescue plan. With many people struggling with debt and not sure which to pay, and when, writing yours down is the first step in the right direction.
Prioritize Paying Off Important and The Most Expensive Debts
Do you have more than one debt to pay? If yes, you should categorize and prioritize them based on how fast they need to be paid. Some bills and debts, such as a mortgage, rent, utility bills, council tax, etc., qualify as a priority. It would help keep these bills and debts current to ensure you have a roof over your head and continue receiving essential services.
With the essential bills covered, next in line should be the most expensive loans (those with the highest interest rates). Even a small loan with a higher interest rate can prove difficult to service if you miss a couple of payments, making them quite expensive. Look for avenues to save money or earn more to be able to service these.
Create A Spending Plan
We all have unique spending habits. Whatever your spending habits are, you need to know how much disposable income is left after sorting essential bills. Monitor your past spending habits and look for ways to spend less and save more to go to paying your debts. Canceling your current gym membership, cable, or cutting down on the morning coffee can see you save some more. In addition to this, start shopping for a more affordable mobile phone contract, home insurance, and cheaper utility providers. Switching to energy-efficient heating and lighting methods could also see you save thousands of dollars in a year. Although it might not seem like much at first, these amounts will quickly accumulate to a significant amount.
Seek Professional Financial Advice/Help
If you can seem to find a viable way to get out of debt, you might then want to seek professional debt advice and counseling. Although most companies offer such at a fee, you can still find plenty of companies willing to do that free of charge. Many debt charities, including National debtline, StepChange Debt Charity, and Citizens Advice Bureau, are excellent examples.
Formal debt management plans are also viable, especially for those with complicated debts. These are third parties that can help renegotiate debt repayment with your creditor. They also will advise you on the best way to stay afloat and service loans without drowning. A good debt charity officer can advise you further on this.
Consider Debt Consolidation
Although debt consolidation may sound counter-intuitive for many, it is one of the best options if too deep in debt. It involves consolidating all debts and transferring them to a single creditor in one lump sum. Depending on your current credit score, you can have the balance transferred at 0% interest, at least for some time. This means you will have several months to figure your finances out and pay the debts within the specified period. If everything goes well, you might even pay the entire loan without paying interest. It would thus be advisable to take advantage of the 0% period and pay as much as you can, or clear it all together, failure to which you’ll have to pay a fee.