If you are neck-deep buried by debt, one of the best things to do is organize your finances first; to determine exactly how much you owe and to whom. You can do the conventional way or you can download Apps to organize your finances.
The simplest and slowest way is to take each individual bills and find the balance due as well as the lender’s name. You should keep track of this information going forward, using a spreadsheet, an online service, or a personal finance computer program. While some programs can pull balance information directly from your lenders, if you are using a spreadsheet or notebook, you’ll need to do it manually. Consider signing up for online access for each of your lenders so that you can check your balance and payment information easily and frequently.
If you aren’t entirely sure that you are receiving all of your bills (especially if you’ve moved around quite a bit or have recently divorced), then it’s a good idea to pull free annual copies of each of your credit reports to find out what your lenders are reporting to each of the credit agencies. To get a full picture of how much debt you owe, you really should get reports from each of the three major credit reporting agencies, Equifax, TransUnion, and Experian, because different information may be contained on each of the reports.
Keep in mind that the information contained in the credit reports may not be the absolute latest, due to the lag in reporting. Therefore, once you obtain the credit reports, you should also contact each lender to find out what the current amount owed is. Then, sign up for online access to each of these accounts to accurately track payment amounts and balances.
The organization is essential to keeping your financial obligations up to date, so taking some time up front to set up access and find out balance and payment amounts will definitely save you some time later, and help prevent late fees.
Debt is everywhere, no matter where we look. Regardless of the source of non-mortgage debt, it can take years to pay off. This not only increases the possibility of running into debt fatigue but as well add the amount of interest that needs to be paid over the life span of the debt. But, it doesn’t have to be that way. There are simple ways to cut costs that can give additional funds to cover for the existing debt.
Here are some practical work around or opportunities that can be used to solve debt problems.
> Reduce Monthly Bill – Check the amounts you are paying for your bills. Do comparisons, or ask if you could switch to their going promotions. Or better yet, change to other providers that offer a more savings for your bill.
> Switch to a Zero (0%) Interest Card. – This may not give you extra money, but it will make the money being wasted to pay off debt work better for you. You can also consider debt consolidation to significantly lower your interest payment.
> Reconsider you Membership Cards – Sometimes, membership fees and other payments in joining your club makes such a waste of precious funds. Good example is your gym card, you can substitute gym by jogging along your neighborhood or do some housework to burn those extra calories!
> Rid of your junk! – Look around your house and surprisingly, you will see a lot of things that can be converted into good old cash! Earning few hundred dollars out of your “junk” items should not sound too boring, right?
> Eating Out. – Many of us spend at least extra $20 – $30 per week just to eat in a restaurant or fast food chain. Instead of doing that, the old reliable brown bag sandwich will do some magic to sate your hunger instead of buying food which obviously cost higher. In a month’s time, you will save at least $80 extra!
> Cut some of your “extra” entertainment and energy sources. – Having your internet and cable connections at the same time can rob you out of some money. If you don’t really use your cable connection and you only watch your favorite shows/movies occasionally, you can access those through internet then take the cable out of your system. For your monthly energy bill, save on heater or air conditioner when necessary.
There are many ways to cut expenses that will enable you to divert more money into your debt. The challenge is to be mindful of where you can cut back and convert your savings to pay off your debt. At times, it may require a mile of sacrifice, but it will significantly correct your finances in a way that your debt can be obliterated sooner than you think!
If you owe money from your bank, DO you somehow expect them to automatically take money out of your savings to SET – OFF what you owe them IF you are lagging on your payments either from your credit card or loan/s?
It is a hidden danger for anyone who has credit card, loans or mortgages at the same outfit where one banks or keep the savings. Banks can, and do, use your money to repay overdue debts, which can cause financial hell. Here is a guide that could help one beat this concern:
Know your right to “set-off”
Most of the financial institutions have the right to transfer cash from your bank or savings account to pay off debts held with them. It is known as the right to set-off or to link your accounts. This may not happen to most people, but to those struggling financially must be wary and prepare.
At times, there is a term or condition in your contract allowing it to happen, such as:
“The Bank may, without notice, set off a debit balance, or debit interest, on an account against any account with a credit balance or credit interest held by the same account holder”.
Some firms can add set-off into its contract, in banking and tax, there’s an automatic right to use the procedure. However, it is also important to check with your bank first as sometimes, we tend to overlook the terms and conditions on the contract.
End results of setting – off.
Setting-off can cause various problems – anything that affects how people budget can have long-term detrimental effects. If you’ve money set aside to pay for imminent cheques or direct debits from your accounts, but it’s taken without notice before, your payments to bounce and you to face bank charges. Technically, the rules give wide-ranging powers to banks, way beyond just sorting out unpaid accounts.
How to prevent this to happen?
Best way to avoid this is to keep your debts and bank/savings accounts in separate institutions. It is easier to move savings than debt. If you’re having financial difficulties, go for the Basic Bank Account or check with your local credit union offers current account.
Rules with Banks on setting – off.
You can check on the Lending Code, a voluntary code of practice and most banks subscribe to it, and the rules are binding.
While banks don’t directly divulge before they are going to take your money, they need to inform people of the circumstances of setting off rules.
The bank also need to look into whether you are having or heading to financial difficulties before they take money out of your bank/saving account. They should leave you with enough money to cover reasonable daily expenses and priority debts (mortgage. rent, tax, food bills).
It is always good to know your bank and lender rights, even if you are in debt.
There are no debt problems that cannot be resolved! We may not be able to come up with quick solutions or immediate fix, but there should always be a way to solve it. And the earlier you deal with it, better debt management.
Debt is not just a monetary issue, it involves the wholeness of your life. So, solutions are wide and varied – from cutting on spending, finding lower interest rates, budgeting, or simply getting out of your debt with a help solution from experts.
There are ways to deal with debt problems. Which one is right for you will depend on whether you’re in a technically defined debt, or if you are just worrying or due to huge debt.
There’s a strong indication if you answer yes to either of these:
Are you having difficulty paying all your basic outgoings: mortgage, rent, energy bills or credit card minimums?
Are your debts (excluding your mortgage) bigger than a year’s after-tax income?
Before you start tackling your financial problems, the basic and most important thing to do is get a disciplined handle on your spending. Stop borrowing and maximize repayments. Focus on cutting the cost of debts, rather than looking at the bigger picture of all spending.
Refrain from borrowing more. Traditional debt help say: Never borrow your way out of a debt problem.
If it’s possible to borrow more cheaply elsewhere to replace existing borrowing, this can provide a huge boost as lower interest rates mean more of your cash goes towards paying the actual debt rather than just covering the interest.
If you can’t cut cost on debt, or if after doing that you’re still struggling, then consider some severe measures.
- Talk to your lender, let them know if you are unable to pay; it’s always better to talk to them.
- Get help from the government – There are few ways which may be able to provide you with interest-free borrowing than getting into commercial loan. You could get as much as $1000 lent, and repayments are dependent on what you can afford to pay.
- Free Debt Counseling – If all options are exhausted, it is worth talking to the right people to counsel you, the non-profit debt counselling help. Be careful not to confuse this with ‘free help’: many commercial companies say they’re free as you’re not charged directly, but you’ll still pay somehow.
These non-profit agencies are also the ideal people to go to if you’re being harassed and bullied for payments by debt collection agencies. The debt counselling service will inform collectors, which will then give you a month’s breathing space to get yourself on a better footing. And take care of your debt at a manageable pace.
You are seriously overspending if you have debt and trying to save, but there is a swift solution for this. Best solution is to pay your debt first before you save or even before you start on your mortgage. Forget the old cliché “you MUST have an emergency savings fund”. Because this logic will get the better of you while trying to pay your debts.
Here are some guides to pay off debt first rather than save at the same time:
> Pay off your debt with any savings you have. – Well, this may sound a bit off, but, yes, you read it right. My point is, if you have a savings of $1,000.00 and you owe the same amount from a credit card, compute the high interest rate incurred from your debt from the interest earned from your savings. Debts usually cost more than savings earn. Cancel them out and you’re better off.
> Banks would welcome your savings and incur debt, too! – Simply put, if you save/deposit money to the bank, you are actually lending your cash to the bank for them to lend to other people. The difference between the rate at which it borrows money from you, and the rate it charges others is the bank’s profit. So, it will always cost more to borrow than you can earn savings.
> There is an exception to the rule! – The rule is based on the fact that it usually much higher than the benefit gained from savings. So, you will gain more by getting rid of the debt than starting to save. Consider these:
** Penalty exception. If you are caught into a debt, paying it off will incur penalty, so does with some loans and mortgages. Then leave the cash sitting in a savings account until the penalty’s small enough that it doesn’t matter.
** The interest-free / very cheap debt exception. Debts cost. Yet those who carefully and conscientiously manage their debts so they’re constantly interest-free should follow the opposite logic. If the interest rate on your debt is less than the amount your savings earn after tax then, providing you’re financially disciplined, you can profit from building up savings and keep the debts. In effect, you’re being paid on money lent to you by the banks for nothing.
> Should you need an emergency fund? – This question may be difficult to deal with, because the idea of having some cash available makes one feel safe. Especially when we talk about traditional budgeting, it always reminds us to have a bit of a “savings”. But I beg to disagree, the aim-point should be to become debt-free. Still, the best thing to do is to pay-off first your debt using your savings/emergency funds.
Doing your budget planner accurately should not take too long. It would be easier if you gather all your bank and credit statements from the last 3-months. List all standing orders, direct debits and give you an accurate idea of what you spend.
For your grocery, gather all your receipts from the last 3-months, add up all food spending listed then divide by three to reach average monthly spend.
It’s always surprising to see quite how many things you spend on. Worse still is how much you spend on them. Yet there are always ways to save. It’s worth considering if you’re getting the best value for money, and can you cut costs?
Gather also your pay-slips to establish the exact amount you earn. Once you have the exact picture of your income expenditure, hopefully, you have triggered the end of which tells you the truth of your finances.
Providing you’ve been honest with yourself, it’s time to relax a bit – but it should not stop there. You need to work on reducing, adjust spending habits and create a reasonable spending pattern. Paying less for things means you have more money in your pocket to enjoy life more (and possibly save some for the future too!).
Spending more than what you earn may not immediately give you a negative impact, but it is a disaster waiting to explode! Worst is, you will end up borrowing more! You may feel that this is over-reacting but, when you are caught in spiraling debt – it touches every element of your life. Many people mistakes themselves about this, common thought is, “that doesn’t happen to nice families like us”. Well, I’m afraid even if you’re middle class, you’re not insulated from debt. In fact you’re in the prime category for debt crisis. It’s crucial to take the blinkers off. Far too many people in work with good salaries have bigger debts. If your non-mortgage debts exceed half your after-tax salary, it’s a real issue.
ASSESS YOUR SPENDING!
> Pain-free spending – Spending cut-back ensuring you live the same way but pay less. Don’t just look on the things like, credit cards, bill/mortgages. You can also save on childcare, taxes, etc.
> Re-budgeting adding the expected savings – Check your budget planner and incorporate expected expenditure based on expected pain-free savings.
> Cut-back on painful savings – You need to spend less, do less and sell things until you are living within your means. You need to start slowly to reduce on your spending, run through what you need. And if you have assets but are income burden, then consider flogging things you don’t really use, this will definitely help you afloat.
Working on one’s finances is quite tedious and tiresome. BUT, it is a must! At the end of the day, once you are good with your finances, life should be appreciated and enjoyed!