Loans, credit cards, rent, mortgages and everyday expenses can take its toll on you. No matter how hard you try, you end up finding it difficult making ends meet every month. You end up getting loans in the hope of coming out of debt. However, it only places you in a pool of debt as you use a new loan to repay the old loan. Repeating the same mistakes, and living in denial only makes things worse.
It’s when you are in serious debt that you tend to panic as your anxiety levels rise while you wonder what to do next. You worry about the consequences of living in debt, how it will affect your life and if you will end up bankrupt.
While it’s natural for all these thoughts to enter your mind, you should not panic. Panic only makes things worse. What you need to do is take a deep breath, and take a look at your present financial situation to realise the extent of your financial problems.
If you feel better and less stressed, you could consider speaking to someone about your predicament as sharing your problems help reduce your stress and burden of worry. It’s especially important that you be open and frank about your financial predicament with your partner if it affects them both financially and emotionally.
If it’s comfortable, you can talk and discuss the problem with trusted friends and family. However, don’t’ worry if you don’t feel you can speak to them as debt is a difficult subject which not many people can talk about.
However, if you are still panicky about the topic, you can get professional help from a debt counsellor who will listen to your story of how you fell into debt in the first place, and then help you deal with your problem and bring you out of debt. Look at companies like Step Change who can really help.
The best way to come out of debt is first to stop your habit of borrowing money. This borrowing cycle is a trap most people in debt fall into. Once you fall back in your payments for the first loan, you tend to think that the only option you have to pay off some debt is through a second loan.
So how do you stop the cycle? Well, you need to be firm, and draw a line and stop getting loans. Instead, work out how you will be able to earn more money, and then come up with a payment plan for all your existing loans. Note that consolidation loans can help and are not considered bad if you use them correctly to restructure your debt
Take a look at all your bank statements, look for any mistakes in the entries and check all the bills you had ignored. Now start listing out how much you owe to each bank, person and company and its respective rates of interest. List out who you owe maximum money to, and who is the most lenient of the lot. Once you have gathered all this information, it’s time for you to prioritise your debt.
You will have to take care of pending rents and mortgage payments first as you can’t risk getting asked to evacuate your office or even worse, your home. So you need to draw up a budget to determine how much you can afford to use for repaying your debt every month.
You can do this by calculating how much is left over after deducting your existing monthly expenses from your total monthly income. It is this amount that is left over that you use to repay your debt every month.
Take a look at your expenses, and decide where you cut or reduce your expenses. Stopping some luxuries will help you save lots of money so that you end up with more money you can use for repaying your debt.
For example, you can stop buying lunch at the office cafeteria and instead take a packed lunch to work. Instead of going out to dinner every weekend, you can make it a fortnightly or monthly affair, based on the extent of your debt and how much more money you need per month.
Don’t buy clothes unnecessarily, just because your colleagues or friends have bought some. Learn to buy only necessitates and don’t splurge money on unnecessary things. If you have kids, explain your financial position to them, and tell them why you have to restrict their expenses too. Don’t waste electricity or water as it only increases your utility bills.
All these small changes in your lifestyle will leave you with substantially more money to use for paying off your debt. Remember, little drops make an ocean! It also helps if you stop using your credit cards. The more you spend on your cards, the more debt you end up with. Instead, spend and buy only how much you can afford and work on repaying your debt instead of building it up!
Now you know how much you can afford to spend to repay debts, you now have to chalk out your repayment plan by prioritising your debts. It’s better to use a debt-busting technique called 'snowballing’ to handle your debt as its foolishness, and impractical to attempt to pay off all your debts simultaneously.
According to this technique, you have to concentrate on a single debt and work at paying it off first, while making minimum repayments to other debts. This way you soon end up paying your first debt off, after which you can start working on the second debt and continue in the same manner till you clear all your debts. Moreover, you feel psychologically relieved once you see your list of creditors growing shorter and shorter as you cleat each debt. Always start with the highest rate loan or credit card first.
As mentioned above, rent and mortgage payments are the priority here, closely followed by council tax. Next, you have the credit card debt to handle. What you can do is transfer your debt from the expensive credit cards to the 0% balance transfer credit cards.
The benefit of doing this is that these cards eliminate interest charges for the first few months or introductory period of the card. So whatever you pay during this introductory period goes towards repaying your debt amount without additional interest payments.
However, the only way you benefit with this scheme is to pay off your debt amount within the offer period. If not the entire debt amount, pay off at least most of the debt amount so that when the interest rates start clicking, it’s only for a small amount which will not be that difficult to handle.
Another option is to transfer your debt to a long term, low rate credit card if you need more time to repay your debt. This way though you may have to pay some interest every month, it will be lower than what you were paying all this time.
There, however, is one drawback here. You need a practically fool-proof or rather unblemished credit rating to get these cards. So check your credit rating by asking for a copy of your credit history from any one of UK’s three main credit referencing companies- Callcredit, Equifax and Experian.
If it’s good, then there’s no problem. However, if you have a bad or poor credit rating, don’t jump to immediate conclusions. Check your credit history as there may be some mistakes on the credit report. It’s the data on this report that determines your credit score, and there’s always a chance of it having some errors.
Make sure there are no late payments which have been incorrectly entered. Also, check that all the amounts owed for each open account are correct. Any errors you find in the report should be reported to the credit bureau. If you have a poor credit rating, and there are no errors, you need to work at rebuilding your credit.
Making payments on time is one of the best ways to build your credit score. Payments made even a few days late only lead to a negative impact on your credit score. So start paying your rent and mortgage on time, and it will show on your credit report. The longer you keep on paying your bills on time, the better your credit score becomes.
Some banks offer payment reminders- use them to remind you about your monthly payments. Another option is to have payments automatically debited from your bank account to your loan providers and towards your rent.
Once you take the necessary steps to increase your credit score, and you manage to make a 0% balance transfer with your credit card, it’s time to take a look at your existing debt to find out how much you still have to pay.
You could consider paying some of your debt using a payday loan. This is worth it if the existing loan has a high rate of interest, and you don’t have cash at the moment to pay for it. Payday loans are short-term loans because you have to aim at clearing the loan balance at the following payday. It’s when you fail to do this that you end up in another debt circle as payday loans have a high rate of interest.
It’s a practical loan to apply for if you immediately need a small amount of money which you know you will be able to repay in full on its due-date, your next payday. Payday loans are easy to get; you can even apply and get your money deposited in your account overnight with an online payday loan application.
Unlike long-term loans where you have to explain the reason for your loan, there is no need of giving any explanations about the reason for your needing a payday loan. This is the factor which ensures the privacy of the loan and also speeds up the loan process.
All you need to do is fill out a simple online application. There is no lengthy paperwork involved, or the need of an extensive credit history to get a payday loan, which is why it’s a feasible loan option for you at this moment of your financial crisis.
There are no extensive requirements to meet to qualify for a payday loan. You just have to meet the minimum age requirements, have an account you are using, have a valid phone number and have some proof of income. Once you make an online application, your loan is approved within a few minutes time.
In fact, if your loan is approved, the cash you had requested for is deposited directly to your bank account overnight. There are no hidden fees to pay or any prepay penalties, which mean you can pay off your loan amount even before the due date, if possible.
However, while it’s so easy getting a payday loan, it’s important that you understand it’s terms and conditions for an immediate payment on your payday. It’s only if you are confident about yourself paying the loan back should you apply for a payday loan.
So you can see, it’s not impossible to get out of debt as long as you know what you should do about it. Panicking and denial do not provide a solution. Instead, you have to find a way to get out of debt by planning your budget, reducing your monthly expenses, stop applying for loans and falling deeper into debt, transferring your credit card debt to a 0% interest card, rebuilding your credit score and using the help of a payday loan and perhaps debt consolidation loan to slowly but surely clear all your debt.
Once you manage to get on top of your debts, it’s time you finally started taking steps to ensure you don’t fall into debt again. You have to learn from the mistakes you’d done the first time like avoiding unnecessary expenses and luxuries, keeping track of all the money you earn and spend and learning to save moony.
Aim at keeping aside some of your salary every month as savings. You will slowly build an emergency fund you can bank on if something unexpected happens in the future, and you need emergency money, instead of depending on loans and falling into debt once again!