Getting in debt is easier than it looks, especially if you have a few credit cards or loans going at the same time. All it takes is a change in circumstances, such as illness, a loss of job, or an emergency like the boiler breaking, to set back all of your hard work paying back your debt. Some debts are unavoidable, such as a car loan or mortgage, and it can be helpful to pay back something that you cannot afford in one lump sum.
Formulating a debt plan can help you work out what debts are best paid off first and how you can better manage your finances. Here are some great tips for managing your debts better, so you can get back on track.
Make a list of your debts
When trying to sort out your debts, it can seem a lot more overwhelming when you have payments going all over the place. When you are trying to remember everything in your head rather than writing it down, this is going to cause further stress, which is only elevated by your financial situation. When you formulate a debt list, you can see exactly what needs to be paid off, broken down month by month. Breaking things down can make the process less daunting and makes it a lot easier to create a debt plan.
Firstly, write a list covering all of your debts, from student loans, mortgages, vehicle loans, and credit cards. For any loans, also note down the regular monthly payment and the current interest rate. When writing credit card debts, make sure to note the interest rate and the minimum payment that must be made each month, as well as your payment goal (if you have one).
To calculate the minimum amount of money you need to pay every month, add your loan payments and minimum credit card payments. It is then helpful to create a budget for yourself, with all your incomings and outgoings, so you can see whether you can afford your debt repayments or whether you need to reduce your spending elsewhere.
Review your budget
If you can already afford the minimum payments each month, you should look to see if you can pay extra. If this is the case, you should then start paying off any loans or credit cards that have the highest interest rate first, as these are the ones that will add up the quickest. If you do not have enough to reach your minimum payments each month or you want to pay your debts quicker, it is time to review your budget.
Take into consideration everything you usually spend, from food shopping to trips out and monthly subscriptions. When you write down everything you spend in a month, it is much easier to see how small spending here and there soon adds up. Look at ways you can cut down your spending in non-essential areas.
You can save money on food shopping by purchasing fresh food and making meals on a budget. You may need to stop going out as much or ordering food until you are in a better place with your debts. It is a much better feeling to spend a few months in the house and watch your debts go down than continuing to go out and then feeling stressed due to money issues. If you use subscription services, look at cheaper options or see if you can share a membership with a friend.
Look into consolidating your debts
For people who have debts in a lot of different places, it may be worthwhile to look at debt consolidation. This will depend on how high your interest rates are and whether it is more beneficial to take out one singular loan that can be used to pay off your debts. This does still mean you are in debt, but one debt can be a lot more manageable than four.
Calculate the interest rate for each of your debts and work out whether a single loan is a better solution. This will ultimately depend on what kind of loan you can get, especially if you have bad credit, which is why you should work with experts. Sunny is a credit broker who specialises in bad credit loans. You can get an instant decision and can see your choices before taking out the loan, to work out whether debt consolidation is the right choice. You can find out more by reading this guide on bad credit loans.
Pay your debts on time
To improve your credit and reduce the risk of late payment charges, it is best to pay your debts on time every month. You may want to write payments in your diary or on an online calendar to help you remember. Most loans and credit cards will let you set up a direct debit payment each month. Creating your budget and formulating your debt list will help you to do this.
If there is any reason you can’t meet the debt payment date, you should speak to the loan company. They may be able to offer a better solution, and it is better to own up than not let them know at all. When paying off your debts, start with the highest interest loan and the one with the lowest balance. With the lowest balance, you will be able to pay it off quicker than other debts, meaning there is one less debt to handle. Cutting down the amount of debts you have is always a great motivation booster.
Speak to someone
Being in debt is stressful, and there is nothing wrong with admitting that. If you have a family member or friend who may be able to help you, it is worth speaking to them. Most people do not like to talk about money, but struggling on your own could cause more stress, especially when someone might be able to help. Even if they cannot help financially, a friend or family member may be able to help you with your budget and formulating a debt list, especially if you struggle with maths.
They may be able to help with money-saving tips or give you some clothes or other items, so you do not need to spend as much money. Asking around for odd jobs could give you a little extra income and could help out a friend too. Perhaps you could offer to babysit, or pet-sit next time your friends are going away.
If you do not have anyone to speak to, you can speak to a debt charity. They can offer free debt advice and have online debt help tools, so you can start managing your debts better. As debts can also negatively impact your mental health, it is worth talking to a mental health charity if you are struggling. This can help you feel less alone.
This guide is designed to help you get out of debt and manage your debts better, especially if you are feeling anxious or stressed about your finances. Follow the steps above and get someone to help you if you need it. Remember to pay your debts on time and consider how debt consolidation might help.