Some of us, can fare very well with debts, paying above the minimum on every account/debt, and aware of what to spend. For others, somehow, debt is a “curse” that has them followed by creditors. If you are overwhelmed by debt, quick and drastic moves are needed to breathe the hope of getting out of it. Check these friendly tips:
> Stop bleeding yourself to death – It is the first-aid tip when there’s a life-threatening injury. Same rule holds true when your financial survival is on the line. When there’s a lot of cash involved to settle debts, you basic needs can be compromised and might lead you into bankruptcy. Stop adding on your debts.
> Picture a debt-free life – Try a little visualization therapy to motivate yourself. How would you feel if you are debt-free? How would you live? What are you long term goals and accomplishments? Feeling good about these “pictures” of yourself will do you good in deciding to steer clear from debt.
> Work on a full budget check-up – Take a thorough review of your budget. Keep track of every penny coming in and out to have a hands on of how much you can pay against your debt.
> Steer away from climbing the debt ladder – Once you’ve trimmed down your budget to pay significantly more than the monthly minimum on your bills, you can either apply the extra payments evenly on all your accounts or choose a payback strategy that focuses on paying off one or two accounts first before moving on to the others. While you’re ramping up payments, you make minimum payments on the others. When your highest-interest balance is gone, you move down a rung of the ladder and apply all your extra payments to the account with the next highest rate. You repeat the process until all your debt is eliminated.
> Create a repayment snowball – One of the common strategies in paying off debt is called snowball. Instead of using interest rates to determine which account to pay-off first, focus on the size of balances. Start by putting extra money on the account that has the lowest balance and, once paid off, shift funds to the next one up.
> Ask you creditors for assistance – Yes, you read it right! What we don’t realize is that, creditors are very much willing to work with debts concerns. Explain your circumstance if unemployed, earning low and can’t cope with payments, or a medical emergency. They may be able to waive your interest charges temporarily.
> Seek for credit counseling – If you can’t seem to figure out on how to come up with a debt-elimination plan, your next best option is to seek professional help from Credit or Financial Advisers. A professional credit counselor can help you review your debt situation and identify repayment options and money management techniques that you may not have thought of on your own.
If you are considering to borrow money and pay it back on a monthly basis, personal loan would be the best option. But before dipping into it, here are few things that you need to know before you go further.
Personal Loans – being catered by banks or other lender are loans that are not assured by any asset such as your property/possessions. It is also known as unsecured loans.
Advantages of Personal Loans:
> You can borrow more than with a credit card.
> You have the option on how long you would like to repay the loan. But bear in mind that the length of a loan will affect the amount you are charged in interest.
> Interest rate you pay is usually fixed (but not always).
> You can pay your loan on a fixed amount each payment. This means your repayment amount is going to be the same each month and easier on budget.
> You can consolidate few debts into your personal loan, this means reducing your monthly repayment costs. But this may mean extending the length of loan and so paying more.
***You can make over-payments or pay off a personal loan in full before the end of your agreement without penalty.
Disadvantages of Personal Loans:
> Personal loans have higher interest rates compared to other forms of borrowing.
> Because the interest rate may reduce the more you borrow, you may be tempted to take out a bigger loan than you need. This might become a debt pit.
> Older loans normally have an early repayment charge if you want to pay off your loan early or overpay.
Personal loans have variable interest rates, it can go up or down. If you can only make the initial repayments, you should shy away from this type of loan.
Think carefully before accepting any payment protection insurance (PPI) the lender tries to sell you. This insurance will cover your repayments in case of accident, illness or you lost your job. The idea is good, however, it’s been widely mis-sold and many of the policies on offer weren’t adequate or didn’t pay out at all. Much as you want to avoid this cover, you will almost certainly get a much better deal by checking prices with several different providers.
Getting the best personal loan deal can be a bit tricky. Scout for the best offer, consider the interest rate, and compare the rates online. Consider peer-to-peer loans especially if you have a good credit standing. Some loans may offer lower interest rates and are available for smaller amounts.
***SECURED LOANS – If you have a property, you may consider availing of a secured loan. But, you will be exposed to bigger risk, because your property is secured against your loan. If you can’t repay your loan, the lender could force you to sell your home to pay off what you owe.
Stuck in debt is really stressful! You cannot think straight on which to pay first, and kinda lost somewhere.
Here are few life hacks to get out of the situation:
> STOP BORROWING MONEY – This should mean stop buying items using credit cards or loans. This will help you focus solely on the debt that you currently have so that you can develop a game plan to pay it off quickly.
> WORK ON YOUR EMERGENCY FUND – You might be asking yourself why have an emergency fund? This emergency fund can become your source for emergencies while paying off current debts. This serves as a buffer between you and debt.
> CREATE AN ATTAINABLE BUDGET AND WORK ON IT - Developing a budget that tracks your income and your expenses is crucial to getting out of debt in a short period of time. It will help you gauge where you are with your finances so that you can move forward toward your goal. It will expose whether you have money left over, which is called a surplus, or if you are in the negative, which is called a deficit. The goal is to increase your extra fund and use that money to pay down your debt. There are two ways that you can do this. First, you need to earn some extra cash, this may mean that you need to work extra hours or look for additional part time job. Second, is to cut down on your expenses. Review all your expenses and assess which of your expense you can reduce or cut-down. You may need to get used to letting go of few luxuries you are used to.
> SET UP YOUR BUDGET – This is predominant in determining a plan to pay off your debt. There are two ways that are worth considering. First is where you list your debts smallest to largest regardless of the interest rate. Second is called “laddering”. This is where you list your debts, starting with the highest interest rate card first and end with the debt with the lowest interest rate. This method makes the most mathematical sense, because you will save the most money in interest over time. Regardless of which process you choose, the key is to stick with it.
> PITCH ANY EXCESS MONEY AT YOUR DEBT – If we are getting out of debt, we have some extra funds thrown into our laps that we may not considered into our debt elimination in the first place. We may decide to take this funds out and pay off debt. Such examples are tax refund, inheritance, sold items/car/house, etc.
Being caught in debt should not be an agony for the rest of your life. It is just a matter of developing your financial skills to start your life being debt-free.
Find out about the different ways to deal with debts if you are falling behind with day-to-day bills, loan and credit card repayments or other financial commitments, like your rent or mortgage. Then get some free debt advice before you make a decision.
Debt Management Plan – It is suitable if you have non-priority debts such as credit cards, overdraft or personal loans. This allows you to pay back debts at a rate you can afford. You make one monthly payment to the Debt Management Plan provider.
Debt Relief Order – This is suitable if you are on a low income with very few assets. Or freezes debt for a year then writes it off completely if your circumstances haven’t changed. Once a Debt Relief Order is agreed, you make no further payments to the people you owe money to (your creditors). Your creditors are only likely to agree to a Debt Relief Order if it is unlikely that you will ever be able to clear your debts.
Bankruptcy – If you file for bankruptcy, it will allow you to make a fresh start. Writes off all debts you can prove you owe. If you have any assets, they will be taken and used to pay off your debts.
Full or Final Settlement – If you have a lump sum that would cover part of your debts, you could ask your creditors whether they would accept a part payment and allow you to write off the rest. Alternatively, they may allow you to make monthly payments for an agreed period after which the balance is written off.
Individual Voluntary Arrangement – This will allow you to pay back what you can afford. This usually sets an amount of time and anything you haven’t paid off by the end is written off. Individual voluntary arrangement is a legally binding agreement – this means once you’ve signed it, neither you nor your creditors can back out of it.
Write Off Your Debt – This is only suitable in exceptional circumstances if you have no available income, savings or assets. You must be able to show your creditors that your circumstances are unlikely to improve in future (for example, if you are severely ill)
It’s always best to talk things through with an experienced debt adviser before you decide how you’re going to pay off debts.
There are many ways to clear your debts and some are well known than others. The one that is best for you will depend on your personal circumstances.
A free debt adviser can help you make the right decisions so that most of your money will go to paying off your debts – meaning you could be debt free sooner than you thought.
The people that let debts build up before they seek advice often find things have spiraled out of control, their cards are maxed out, no-one else will lend to them and it takes much longer to pay back what they owe.
Financial uncertainty happens. So, securing yourself financially is the only way to go.
Credit card debt is a doom when you’re right in the pit of paying off and no stable funds to cover the payment is available.
Here are some doable hacks to handle your credit card debt:
> Assess your credit card debt –You’ll never hit your target if you don’t know where it is, so be brutally honest with yourself. Create a record of our outstanding credit card debt and its interest rate of every card you use.
> Negotiate with good rates – Get in touch with your credit card company/s and negotiate with a lower interest rate. A simple phone call and a polite request may be all it takes. Each lender has an approach in handling such issues. Once you get the lower rate, write down your new interest rate and check on how much you will be saving.
> Make a record on all your expenses – Write down all regular, committed expenses (scheduled payments), and keep track of other variable expenses. This will be your foundation to your budget. You can assess where to cut back, cancel, or downgrade some of your services. Spread your monthly budget into weekly allotments to better handle your spending. Study up to a year’s worth of credit card bills and bank statements to get an accurate sense of your monthly spending, and keep tracking your expenses with a notebook or financial software.
> Opt for your payoff technique – First strategy, payoff the highest card that has the highest interest rate, while paying minimums on your other cards. Once paid with the highest, repeat the process on your other cards. Second strategy is, payoff your credit card with the lowest balance first while continuing to pay the minimums on the others. Once you choose your strategy, arrange cards in the order that you will want to payoff.
> Put away your plastic – Store your credit cards where you won’t have easy access to them — but don’t cancel them. Plan to pay in cash whenever possible.
> Look for motivation and support – Build concrete goals and be focused. Write down your goals and keep them in your wallet or purse. If you get tempted to overspend, take a look at them to remind yourself of the bigger picture. Find a community/group to swap stories, successes, and challenges. A forum where you can feel supported and finally say, “I can do it”!
> Keep track of your financial progress – While you abhor spending time everyday fretting over your bills, watch out on your spending. Put reminders in your calendar to check up on your finances. Keep the page with your starting balances, and compare them to check your progress.