Struggling with debt is one of those things people face in life at one point in their lives. The feeling is stressful and can be exhausting. If it’s not taken care of quickly, the situation will only get worse. If you are in debt, know that you are not alone. The sooner you rise up and face the situation, the better so as not to increase your money problems. It won’t be quick, it won’t be easy because the solutions offered can be very wide atimes and may also vary too; from cutting interest costs, to budgeting…and so on.
This article will show you the basic steps to help you deal with a debt problem. However, you should get independent advice to further help you deal with this issue.
1. Man-Up and Face the Facts
This is the first step to recovery. Try to discover the extent of your financial problems. Start by combining and analyzing your latest bank statements. Track down any misplaced piece of paperwork. Open those bills you have been ignoring. Next, make a list of how much you owe each person or company and the rates of interest. Once you have this information, you can then move on to the next step.
2. Draw Up a Budget
Next, you need to prioritize your debt and draw up a budget. How much can you afford to spend on debt repayment each month? You record the value of your total income against your expenses. The total amount of money that is left is what you put into the repayment of debts every month. Knowing how much you can spare at a time for paying off debt, you can then create a repayment plan that is convenient for you. You can also use this opportunity to check your spending habits.
See if you can reduce the amount of money you spend on luxuries you could really do without. Doing things like packing your lunch for work from home and not buying coffee every time could help make a difference.
3. Snowball your Debts
Instead of focusing on all your debts simultaneously, you might want to try out this technique called “snowballing”. In this case, you focus on paying off your debts one at a time. As soon as you’re done paying off the first, you move to the next one and repeat the same thing. You do this until you’re done paying all you owe. The thing is, it can be rewarding psychologically to see your creditors become fewer and fewer. This makes repaying easier.
It’s important you know that there are two major categories of debt. They are “priority debts” and “non-priority debts”. When debts fall in the priority debt category, serious action can be taken against you if you don’t pay what you owe. For example, you could lose your home, be disconnected from a service or even go to prison. You need to sort out this category of debts first. Debts that can fall into this category include:
- Mortgage repayments
- Secured loans
- Utility bills
- Court fines
Below are debts that fall into the non-priority category. They can be placed aside, and you shouldn’t handle them as first priority.
- Credit card and store card payments
- Bank loans
- Catalogue repayments
- Money you’ve borrowed from family or friends
Read: How to Stop Being Broke
4. Seek Professional Advice
If after all this, you still can’t seem to find a way out of the whole debt mess you’re in, I’d suggest you seek professional advice immediately. Independent organizations such as the Citizens Advice Bureau (CAB) and National Debtline offer free guidance for people who are overwhelmed by their financial problems. CAB currently deals with 9,300 new debt problems every day.
And what if you don’t have this organization in your country, why not consider approaching your creditors to explain the situation and suggest a more feasible repayment plan? You can never tell, they might just be willing to work with the plan. Know what you can afford to pay within a particular period of time. Be sure to start with your top creditors first.
In a case where after you’ve sealed an agreement with your priority creditors, and you have nothing left to offer your non-priority creditors, talk to them (i.e. your non-priority creditors), explaining the situation. Be careful not to make promises you can’t keep. Just let them know that at some point in the future, you’ll pay them back.
5. Explore Overdraft Options
Paying too much interest on your overdraft can easily worsen your debt problems. If you think you’re paying over the odds for your overdraft service, find out if you can switch to a current account with a 0% overdraft.
6. Start Saving
Once you’ve been able to conquer your debts, I’d advise you take this step to ensure you don’t end up in the same position again. Try to set aside 10%-15% of your total income either weekly or monthly. Keep this money in an emergency bank account so you’d have the fund to fall back on should something unexpected happen in the future.
It won’t be easy but if you keep your mind to it, you’ll work it out. Was this article helpful? You’ve got something to say? Let me know in the comments.