Sunday, 28 October 2018

Top Tips For Getting Out Of Debt

Here are a handful of useful tips in dealing with debt problems.

Make a budget

This will be the vital new plan in keeping your finances on track while you get yourself out of your money troubles. A sensible budget is so important, and once you’ve seen the advantages and the peace of mind it brings dealing with the problem head on you should be able to use the same method once you’ve removed your debt to prevent yourself from falling into the same trap further down the line.

If you’ve never made a budget, this is where you start:

Create a written record of all the money you have coming in and all the money that you spend in order to see exactly where you stand at each point of the month. Having this information to hand means you’ll be much more aware of where you stand financially, how much money you have available, and what you can and can’t afford to spend it on.
Whether you create your budget on paper, use a computer spreadsheet or even an app, you need to include every regular outgoing, all bills and payments, plus the amounts you spend on variable items such as entertainment, travel, clothing and any unforeseen items that come as a surprise. Eventually you’ll have a much clearer picture of your true average monthly spend against your monthly income. This will tell you how much money you should have left over to tackle those existing problems with debt and cashflow, or what you can afford to save for the future.

Saving for emergencies

An emergency fund is going to be a priority in making sure you don’t end up back in the same mess you’re working so hard to get yourself out of.
It sounds like a lot of money but take a look at that new budget of yours and ask yourself “how much money would I need to survive for 3 months if either I or my partner lost our jobs?” This is a great place to start. Losing a job is one of the biggest reasons so many people fall into debt purely because they take their job for granted. 3 months sounds like a long time but finding replacement employment can take a lot longer than that and if you start to live on credit cards or an emergency bank loan that debt is going to build a lot faster than you expect it to.
If you’re covered for those emergencies then they won’t seem quite as big a problem if you’re in a healthier place to manage them financially. How would you manage if your car needed replacing? Of your roof fell in? Or your boiler packed up? All of these things take a big chunk of your hard earned cash and if you’re not prepared for them they could well be the reason you spiral into a debt problem you’re going to struggle to get out of.

Cutting back or earning more?

If your new budget highlights that you’re spending more than you’re earning then it’s time to start making sacrifices and cutting back.

Cancel your credit cards straight away. There’s too much temptation to use them when you’re trying to manage without the things you’re used to having so remove the facility of impulse buying those things you can’t really afford.

Change your spending habits. Again, your budget will highlight those areas where you’re spending more than you think. What do you spend on take-away coffees, cigarettes, fast-food, ready made sandwiches and meals that you could cut out completely for the time-being and opt for far cheaper alternatives by making your own. How much do you spend at the pub or dining out each month where you could find cheaper alternative entertainment at home or at a friend’s house?

Sell things you don’t use or need anymore. With eBay, Facebook Marketplace, Shpock and more, there’s no excuse to keep hold of those redundant items around the house that could be helping chip away at what you owe.

Consider a second job, part-time work or a hobby that produces an income. Instead of cutting back on what you spend there are ways of boosting what you earn. Activities such as babysitting, gardening, handyman services, evening bar work and more can generate extra income to help with those nasty bills. Even home services that we’re all capable of such as cleaning, ironing or laundry are worth considering.

Could you rent a room out? If you have the space or a spare room then renting a room out is a simple option to generate a sizeable extra income stream. It doesn’t have to be forever, only for as long as it takes to get your finances back under control.

Professional help

Help is available for problems with debt at all levels and there are many different solutions available for each of them. With so much free advice available it makes real sense to speak to a professional debt management specialist who will be able to tell you the different options available to you in your individual situation. They are in the best place to help you find your best way out of your bad debt situation and how.

Debt management plans

A debt management plan will help you create new terms to the relationships between you and the people you owe money to. Debt management plans are set up by a third party specialist who will handle all the legal aspects of each of your debts and make new arrangements to pay them off at a cost you can afford over a set term. Your debt manager will arrange to make the new fee payments to each creditor leaving you only responsible for paying them one single manageable payment each month.

Consolidation loans

Taking out more debt may sound counterintuitive but if you are struggling to meet a variety of different debts then taking out one single simple loan to pay them all off and arranging new terms that are more manageable than your existing repayments will buy you some much needed financial breathing space.
You may have to choose a loan with a longer repayment term in order to reduce your monthly payments but by doing so it could be the difference in being able to pay off your debt or being taken to court by your lenders.

Find a better deal

If you’re struggling with debt then there’s a chance that your credit rating and report will already be reflecting the struggle you’re in. If you’ve caught matters before they’ve got too far out of hand though then you could be in a position to find a loan or a credit card with much lower rates or fees. If you can transfer the debt to an option that will cost you less there’s one worthwhile saving each month already.

Prioritise your debts

It makes sense to pay off the debts that are costing you the most first. If you’re paying large amounts in interest or fees then they’re the debts you should sort out the soonest. That money would be much better utilised paying towards the capital debt amounts if possible than just paying towards the rollover interest from month to month.

Writing off your debts

Again, seeking out professional advice in dealing with debt problems that you know you cannot possibly manage is always the best way forward. Financial and debt specialists understand your position better than anyone else and are there specifically to help those who need it the most.
They’ll be able to explain if bankruptcy is your best option or if a more suitable alternative is available.
There are further options such as an IVA (Individual Voluntary Arrangement) where an insolvency practitioner will liaise with your creditors to attempt to try and pay off an acceptable amount of what you owe, could work for you?
A DRO (Debt Relief Order) can prevent creditors chasing you for money you don’t have for 12 months and if you’re still not in a position to repay the debt then it could be written off.
An Administration Order is a legal contract handled by Enforcement of Judgements Office where you promise to repay your debts in line with what you can realistically afford from your regular income.

Never be afraid – or too proud – to ask for help

Advice is free, or when it comes to debt management it always should be. If a finance operator tries to charge you for an initial consultation then tell them ‘no thanks’ and find another. It’s important to find a company who you trust and with their help explore every option in order to understand all the methods available to you before making the decision on how you will handle your situation.

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