One thing that most people have in common is debt. Some folks only have a small amount of debt, while others might be drowning in it! We usually get in debt because we want to buy something that we don’t have the spare cash for at the time. Examples include electronic gadgets, cars and houses.
Debt isn’t always a bad thing as it’s a way of proving to future creditors that you are a responsible borrower.
But only if you can manage your debt. If you have to pay out more than you earn, you are on a slippery slope to debt hell.
If that sounds like you, today’s blog post will go some way towards helping you off that debt mountain you’re stuck on. If your money management skills suck, keep reading to find out how you can rebuild your finances.
Make a list of debts and earnings
The first step is to create a list of outstanding debts that you have. It will show you what you pay for each month so that you have an accurate analysis of what you owe and to whom. The list you compile should have the following information:
- Name of creditor;
- What you pay each month;
- What your balance is;
- Interest rate (i.e. APR);
- Arrears, if any.
Once you have compiled this list, you need to add in how much you earn each month. For those of you that are self-employed, make a note of your average monthly earnings. You can also include income from other sources like pensions, share dividends and so forth.
I recommend compiling this list on a spreadsheet as it’s easy to update and calculate sum totals. If spreadsheets aren’t your thing, you can always use a pen, paper and a calculator to do the same job!
Determine how bad your debt situation is
Calculate two sum totals – i.e. your debts and your earnings. If you’re in the red and owe more than you earn, you need to address your debt issues immediately. The same applies if you only have a few bucks spare each month.
What you need to do next is contact your creditors and ask if you can reduce or defer your debt payments for a period. Creditors would rather work with you to reach a solution than sue you for outstanding debts.
Make any debts with arrears your top priority. If you are in arrears, it can damage your credit score and make it difficult to apply for credit in the future.
Consider a debt consolidation loan
Do you have a lot of credit cards, especially those with high interest rates? If so, a debt consolidation loan could help you gain control of your finances again. Loans do not compound interest like credit cards do, and you have a fixed set of payments to make to clear the debt.
Approach your bank and see if they’ll give you a loan. If they don’t, you could try applying for a loan from a peer-to-peer lender or even a credit union. In both cases, they will assess your application on its merits rather than just relying on a credit scoring system alone.
Pay off small debts first
Part of the problem with having debt is not having the motivation to pay it off! If you have this problem, you should consider paying small debts off first. Doing so will help you to achieve your goal of becoming debt-free. That’s because you can use the extra cash freed up towards the next-highest debt and so on.
Of course, if you have some high-interest debts, you should pay them off for obvious reasons. But if all your debts have a similar rate of interest, paying off small debts first is an ideal motivator.
Make sure you have the correct insurance for your car
Having the correct insurance for your car can save you a ton of money in the long run! It means that, if you were ever to have an accident (touch wood), you would be properly compensated for damages. For example, classic cars will be so much much expensive to repair due to their rare parts etc. Getting the correct cover, such as Carole Nash Cherished Vehicles insurance, means that you can be rest assured that your baby will be well looked after without you having to fork out a bomb.
Ditch the car and buy a motorbike
It’s no secret that motorbikes are cheaper to buy and maintain than cars. If you’ve got a car but seldom carry passengers or cargo, sell it and buy a used motorbike instead. You can use the spare cash to pay off your debts faster, and you will lower your monthly expenses too!
Before you go ahead and buy a motorbike, make sure the model you want is one you can afford to insure. For instance, BMW bike insurance quotes might offer higher premiums than ones for Kawasaki bikes.
Get rid of services you don’t need
Cable TV, cell phone contracts and even streaming music services all increase your monthly debts. Your goal is to reduce your debt as fast as possible. To focus on this goal, you need to ditch any expenses you don’t need.
When you’re in a better financial position in the future, you can then consider getting them again. And don’t worry; there are cheap or even free alternatives to what you pay for right now:
- Cable TV – watch free TV shows and films online;
- Cell phone contracts – downgrade to a SIM-only or prepay contract;
- Streaming music – listen to music online for free.
Sell your unwanted possessions
I can guarantee you that everyone has personal possessions they never use or even need. Do a tour of your home and find stuff that you never use and have no attachment to. If they have a value, get busy by listing them for sale on eBay!
You can also use other classifieds or auction websites to advertise your wares for sale. Or for an old-fashioned approach, consider having a garage sale. You could even sell your stuff at a flea market.
It’s quite a fun and rewarding experience. Especially as you’ll have the cash to put towards clearing your debts down quicker! It’s something that I have done loads of times in the past to get some cash together.
As a by-product, you’ll have more space in your home once you sell your unwanted items! Just make sure that you sell valuables for the best prices possible.
I hope this guide will help you to sort your debts out and lead a more stress-free life. Thanks for reading!