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.
When you are neck-deep in debt, you may feel that getting out of it would be next thing to impossible! But when you have the will to level up and pay your debts, you would always find a way.
Assess your lifestyle, adjust your spending, look for additional jobs that can augment your funds. Make a list of what you owe. Here, you can start by following these steps:
> How much do you owe? – It may sound like an easy thing to write, but this can be a difficult part as you may be still in denial. Pick up your pen and paper or make a spreadsheet and be realistic about it. Create a cash-flow calendar to get updated with how your spending is.
> Use cash in spending – Paying with credit card seems so easy to deal with; BUT, when you use the hard-earned cash, you will create some sort of awareness and value of your money.
> Create a rule with payments and spending – If you want to come up with a debt repayment plan, you need to set a goal or plan which is attainable and sustainable. Lessen rather than cut on spending. From the amounts you shave-off from your spending, make a record and assess how much you saved, and you can use to cover for your repayments.
At the end of every month, you will notice how much you saved from non-important purchases, and covered the amount needed for repayments, and interests you saved.
> Negotiate to reduce your rates – You can ask help in making this plan to work. Ask your lenders to assist you on how to reduce your interest rates. Perhaps you could arrange for a certain rate balance transfer of 12 month at 0% annual percentage rate and paid off within a year. Or you can just call in to inquire if you could reduce your annual percentage rate.
> Stop lending so much money to your federal/government taxes – Every month, an amount of your pay goes to your taxes. And annually, you get a tax refund. It’s just like lending your money to the IRS interest-free.
Rather than paying on your debt every month while the government gets your money, you should be using that cash toward your debt. You can put your money back in your pocket by adjusting your withholding on a W-4 Tax form. Refer to the government’s withholding calculator to figure out how many allowances you should take. File your new W-4 to your HR department and give yourself a raise.
> Ask for a professional assessment - If you are having difficulty on debt or are really unable to make payments on what you owe, you may need professional help. Credit counseling can be especially useful if you’re struggling with student loan debt or medical debt, not just credit card debt.