Debt is something that has been forever mystified, with every source of information seeming to offer a different idea as to how to best handle your finances and get out of debts. Most of the time this information leads you to a particular debt solution that will “definitely get you out of debt”, but rarely are you told the plain humble truth; most of the time getting out of debt requires effort on your part.
Debt solutions do exist, and in the right situation they provide relief from unaffordable repayment plans and charges. There are various different levels of debt solution, ranging from informal negotiations, to debt consolidation solutions, right through to bankruptcy.
But unless you are planning on declaring bankruptcy all of these solutions have one thing in common: they still leave you with debt to pay off. In a lot of cases debt solutions ease the burden of the debt, and allow you to change the terms in your favor to give you the space you need to recover, but when it’s all said and done responsible repayment is the name of the game.
The more effectively you make repayments on your debts (and the faster you stop the spending that got you there), the faster you will get out of them. The first step to this is to make it to the point where all minimum repayments are going out on time monthly, no hassle. Many people stop at this benchmark of meeting loan obligations, and this is the mistake that leaves them in debt for longer than is necessary.
Making repayments at the minimum rate does prevent you from receiving late fees, and it keeps your lenders off your back, but you will be literally chipping away at your loans, and in a lot of cases you won’t be paying back much more than the interest. This is going to leave you in debt for a long time to come, and it is also the way to pay back the most in costs.
To get out of debt then, you should be aiming to pay back whatever you can afford per month. This is going to take some sacrifice, and many people will claim that they cannot afford to pay any more than they are doing currently, but without proper budgeting this is an impossible claim to make. Have you really examined your finances to see whether you can pay off more of your debt?
Budgeting allows you to take a clear look at your income and your outgoings, and to decipher the mysterious code of your finances. With it, you will gain tremendous insight into your situation, and will be able to pay back the maximum monthly amount that you can afford on your loans (or that you can bare to part with).
To make a simple budget you can create a list or a spreadsheet with all of your monthly outgoings on it; known costs such as rent or mortgage, utilities, food, transport, medical bills, and of course the dreaded minimum loan repayments. Then subtract this from your income. This will leave you with a total amount of money that is available to you after your essentials are taken care of.
Now, we are all human, and we are all going to spend some money per month on ‘luxuries.’ The aim here is not to be unrealistic. The next step is to work out roughly where the rest of the money usually goes, and to make dedicated cut backs to costly areas. With this saved money, you can pay back more of your debt per month. If you pay back more then you will get out of debt faster, and it costs less… And the veil of mysticism surrounding debt is removed.
Top Tip: If you have multiple debts to deal with, then it is worth putting the money that you saved through budgeting and financial management, and paying back the highest interest debt first (as this is the one that costs the most per month).
If you need help with your budgeting and financial planning, or think that you require a debt solution to help give you some breathing space, contact Deb Negotiators today.