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.
Just thinking of having debts could send butterfly frenzies inside my stomach!
Being financially stressed and having sleepless nights figuring out on how to recover from the pits of DEBT were horrible. The situation ushered me to come up with a game plan to turn around my finances in the pink of health:
> Boost money picture: This means, replace bad spending habits with good ones. Ending wasteful spending, paying down debt and/or stashing money in a savings account or emergency funds. Or think of solid financial investments.
> Identify personal financial goals: Define your objectives in being financially “fit”. It involves setting realistic and measurable money goals. Finding ways to save funds and take care of yourself financially. Make a commitment to follow your budget, add up your sources of income that will convert into savings funds.
> Checking for financial progress: Keep track ensure that you are successful in financial expenditures, making sure to know where your funds are going and not over-spend. Having records of all the ins and outs of your finances will help in reviewing your monthly financial progress.
> Anticipate the volatility of your finances: You have to understand and know what to do if you are unable or unwilling to keep up with your plan. Unforeseen crises/expenses may force you to dip your hands into the emergency savings funds, or there may be times of impulsive purchases. In cases like these, you have to be on guard and consistently consider your goals. If you cannot avoid such expenses, make sure to have a commitment to return to the financial fitness plan.
> Work out your financial with a professional adviser: In improving financial fitness, seeking a professional advice with a Certified Financial Planner/Adviser is suggested. Your adviser should be the best source due to their familiarity with financial situations. They will also help you get educated in managing your own money.
Becoming fit may involve belt-tightening in some spending areas, but it shouldn’t mean you’re forced to deny yourself of everything you love. Instead, build a financial fitness plan and budget that has room for small perks. Just make sure the splurges are financially sensible.
Spending your hard-earned funds needs to be dealt with practicality and sensibility. Travel during off-peak season, Purchase items on sale and make sure it is a NEED. Invest wisely. Your savings and emergency funds should be in progressive amount each time you check.
Road to financial recovery and stability may come as a hurdle or challenge in the early stages of your financial “build-up”, hindering you from accessing some luxuries and extravagance, but after realizing your goals and financial dreams, it’s not too bad to say, “every dime earned and kept are worthy enough to bring me to where I am now… FINANCIAL FREEDOM!
How to Pay-Off Your Debt Faster & Save Money | Paying Down Mortgages & Loans
Here are the most effective methods for paying off your debt fast and saving yourself some funds. These techniques save you the most money when used on mortgages (because mortgages involve big numbers and long periods of time), however, they can also be used to pay down other debts quickly.
Pay Bi-weekly Rather Than Monthly
Easiest way to pay your mortgage down faster is bi-weekly mortgage payments rather than monthly payments will reduce the time it takes to pay off your mortgage by several years. This payment arrangement will provide lesser interest rate on the outstanding balance and saves funds from the interest amount computed from the by-monthly cost.
Most people would never guess that making the equivalent of one extra mortgage payment each year could save so much money. If you want to be aggressive, you can pay weekly, but unless you’re super organized with your bank accounts and money, stick with bi-weekly payments to match your pay cheques.
Here’s a table to see how monthly, accelerated bi-weekly, and accelerated weekly payments compare.
Accelerated Mortgage Payments
|Assuming a mortgage of $172,000 at 5% interest over 25 years|
|Type of Mortgage Payment||Monthly Payment||Accelerated Bi-Weekly Payment||Accelerated Weekly Payment|
|How it works||This is what lender determines that you must pay each month.||Cut monthly payment in half and pay that amount every two weeks.||Divide monthly payment into quarters and pay one quarter of monthly payment every week.|
|Years to pay off mortgage (Amortization)||25 years||21.4 years||21.4 years|
|Savings over the life of the mortgage||$0||$21,536||$21,774|
Round Up Your Payments
Round your payment up to the next large number. Paying any amount extra each month will help get debt paid faster.
|Rounding Up Your Payments|
|Type of Loan||Mortgage||Car Loan||Credit Card|
|Original monthly payment||$960||$373||$140|
|Rounded up payment||$1,000||$400||$160|
|Reduced life of loan||25 years down to 23.2 years||60 months down to 56||9 years down to 6.6 years|
|Savings over the life of loan||$10,686||$389||$2,465|
Putting It All Together to Pay Off Your Mortgage More Quickly
If you get aggressive with mortgage payments, round them up to a higher number and cut that number in half and pay it bi-weekly. Make sure that your budget can handle these larger payments. You may talk to your lender about creating a safety net to fall back on if you end up taking on more than you can chew. You can set up mortgage with the lowest payments and sign a voluntary payment option agreement to accelerate payments. If your finances become strained you can revert to a lower amount or the minimum that you’re required to pay. Be sure to check that you’re allowed to increase payments.