Nobody wants to be in debt — although the sad truth is that millions of people are buried under a mountain of it. Unfortunately, owing a lot of money to many creditors causes problems — not only for your personal finances, but also your relationships and the way you live.
Debt consolidation companies have helped thousands of people to get out of debt and away from such a situation. After all, it’s no secret that many people want to get out of debt and away from the crippling interest on credit card payments. The reality is, a lot of people can make changes to their lives that would in turn help them improve their financial situation. With that in mind, here is a quick reference guide to help get you on your way:
Calculate what you owe. The first step to getting out of debt is by figuring out how much you owe, then coming up with a plan on how to repay the same. Start by creating a list of all those you owe money and calculate how much ought to be paid per month. You can also contact your creditor for an accurate account of how much you owe.
Prioritize your debts. Some debts are considered more urgent than others; these include the mortgage, rent, energy and council taxes, among others.
See how much you can pay. Start by creating a budget for all the essentials like: food, housing, and utilities. Then subtract the total cost from your income. Any amount left can be used towards reducing your debts. There are plenty of financial tools; for example, Citizens Advice budgeting tool, that you can use for more accurate calculations.
Pay urgent debts first. Make an effort to contact priority creditors if in a financial crisis. Rent, for example, is an urgent debt that should be settled to avoid eviction.
Pay less-urgent debts last. If you still have some money after taking care of urgent debts, then you can focus on reducing your less-urgent debts, such as credit card bills. Contacting creditors yourself and offering them a reduced payment plan is an option. Be sure to seek financial advice if you’re unable to pay your lower-priority debts.
Pay more than the minimum monthly payment. Making more than the minimum payment required amount can help reduce your debt significantly over time. It also saves on interest payments. Just be sure to check with your creditor to ensure there are no penalties involved with loan prepayments.
Settle with creditors. Some creditors will agree to settle your debts if they deem the risk too high by agreeing to retire your debt in exchange for a lower one-time lump-sum. Debt settlement might be your best move if you have an account that is extremely past due, or if you have factors that increase the odds that you’ll be unable to repay the loan.
Negotiate interest rates. While this may seem far-fetched, you can actually negotiate interest rates on your credit card. If you feel the interest rates are too high for you to afford, talking to the creditor may result in interest charges being lowered to a more manageable rate. You also have the upper hand in negotiating lower interest rates if you have been making repayments on time and have a good credit score.
Drop expensive habits. Start by re-evaluating any purchases or monthly subscriptions you have, and scrape off anything that doesn’t seem necessary. If you’re a smokers or heavy drinker, consider quitting. You can also save lots of money by preparing your meals at home.
Following these tips may not get you out of debt alone — but they will do a lot of heavy lifting and can help you get more control over your financial situation.
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Always pay yourself first. Always!
Good advice.