5 Tips to Getting Out of Debt and Staying Out of It
Short-term loans and taking on some debt can make sense sometimes. However, a lot of people find themselves drowning in debt which they’re unable to get out of.
While debt may seem like a bottomless pit, it doesn’t have to be. With the right planning, research and information, not only can you easily get out of debt, you can stay out of it as well.
1. Pay Off Priority Debts First
If you have multiple debts, you may be slightly confused about which ones to pay off first.
A good idea to break this down is to take care of your ‘priority debts’ first. These can be characterised as debts that will have far more severe consequences if they’re not taken care of as soon as possible.
Some examples of priority debts include council tax arrears, rent arrears and mortgage payments. You always want to pay your rent or your mortgage debt payment first because otherwise, you could lose your home. Similarly, not paying council tax arrears could result in bailiffs visiting you and seizing your possessions.
Once you’ve completely paid off your priority debts, you can start focusing towards non-priority debts such as credit card debt.
2. Seek Professional Advice
In the debt collection and debt repayment process, knowledge is key. The internet is a great tool for looking up information regarding how you can pay back your debt with websites such as Money Nerd making great strides towards helping debtors deal with debt collectors.
These individuals have been dealing with creditors and debt collectors for years and they have great knowledge about how to deal with them. They will analyse your financial situation and give you advice on what your options are in terms of a debt solution
Once you’ve chosen a debt solution, they can also help you draw up the terms that you will present to your creditors. They’ll use their expertise to draw up a proposal that will be both affordable to you as well as acceptable to your creditors.
If you can’t afford professional counselling regarding your debt, try contacting an independent charity. These organizations offer their services for free.
3. Reduce Your Credit Card Debt by Moving it Around
A lot of credit cards give you the option of transferring the balance onto another card. This process is known as a balance transfer and it can be a great way to reduce your credit card debt.
The key is to transfer your balance onto a card that has a lower interest rate than your current credit card. This will effectively reduce the amount of money you have to pay back.
When transferring balance from one card to another, be sure to look out for transferring fees. These fees are typically 2 – 3% of the total balance that you’re transferring. If the amount of money you’re transferring is a lot, then the transferring fees could make it so that the money you save is a lot less than you’d expected.
4. Monitor Your Spending Habits
If you’ve incurred credit card debt, for example, then it’s usually a good idea to hold off on using that credit card until the debt is paid off. Not using it at all may be overkill but it’s definitely a good idea to limit your spending until the debt has been paid off.
Having a self-imposed spending limit can be a great way to keep yourself in check so that you don’t find yourself in debt.
It’s also a good idea to only make purchases on your credit card for things for which you already have the cash in hand for. This means that you should only make purchases using your credit card for items that you can pay for immediately. Use your credit card as a payment tool, not as a debt instrument.
5. Reduce Living Costs
There are several ways to reduce living costs and these can have a drastic effect on your ability to pay off your debts. You will find that you’ll have a lot of money left over each month to pay towards your debts.
The first thing to do is take a good look at your home life and identify any extravagant services which you may be paying for. You can opt to downgrade your mobile or internet services to a cheaper rate. You can also opt to get rid of any services that you can live without such as cable TV, etc.
If you have any habits such as smoking, you can opt to quit them as well. Not only will this save you a ton of money, but it’s also a much healthier option.
Being in debt can be a very stressful situation but it’s important to keep in mind that you have a ton of options available to you even if you can’t afford to pay it off.
With the right planning and research, you can easily carve your path towards financial freedom.