If you feel you are drowning in a sea of debt, stop panicking and start taking action now. The only way you will be free of debt is take control of the situation and move forward knowing what you need to do and how to do it.
To understand the true extent of your debt you must write it all down, each debt on a different sheet of paper, this makes sorting them easier.
- List the company’s name
- The amount of money that you owe to date
- The available limit
- The interest that you are paying
- The amount you pay each month towards the debt
Now split them into the different sorts of debt.
- credit cards and store cards
- personal loans
- payday loans
- loans from friends and family
- car loans
There are some loans that you should pay off quicker and there are others that are fine to pay off over a period of time. Mortgages and personal loans and even car loans, whilst it is a great idea to pay these off, some of them have tie in’s and can cost you more. These are best left until you have paid off some of the other credit first.
To know how much money you have, to pay down the debts, you need to know how much money you have coming in each month and the financial commitments you have.
Creating A Budget
The best way to understand your financial position is to create a budget, here you can list all your normal monthly outgoings and any money that you have coming in. It is important to save for those annual bills, which need paying on a regular basis and if you have the money saved you won’t need to pay interest on the amount due.
You need to have money over at the end of your budget so you can put more money towards your debt. You might need to adjust some adjustable areas like your grocery budget, to allow some extra money to pay towards your debt. It doesn’t matter if it is just £5, it is something more.
If you are struggling with sorting your budget and just don’t know who to ask for help and advice, it is possible to go to the Citizens Advice Bureau for help.
Once you have completed your budget you are now in a position where you are able to look at the bills and work out the one that you must pay first. Ideally you should choose the bill with the highest interest rate, which would save you more money long-term. However, if you owe friends and family money you might choose to clear their debt first.
Choosing The Debt To Pay
Write down the amount that you are paying off the debt, the minimum payment and the increase. Don’t forget that you will need to add the interest on to that balance the next time you get your bill through.
If you see you are making progress and the amount owed is coming down, you are moving your debt in the right direction. If you feel that you aren’t making headway check the amount of interest being added, you might see a reduction in this before you notice it on the amount owed.
Once you have paid off one debt move to the next debt; always pay your minimum, but now you have the extra money from your first, paid off, debt add the extra to this new debt to clear it down quicker.
The Debt Cycle
Writing the debts down helps you to own up to the money you owe. You have after all, spent the money, it is therefore your responsibility to ensure that you are trying to clear the debt.
Owing money on various forms of credit becomes a vicious cycle; you have to use money to pay debt that might have paid for your groceries for the month. It is difficult but it is possible to break the cycle and to be free of the debt that many stores seem to want you to have.
It is a very difficult time of the year, children are pressuring parents for the latest gadgets, and parents too might want to join in with the festive spirit. However, you need the money to pay the bills, getting prepared before the holiday season is important. You mightn’t be able to afford everything and teaching your family that they can’t have everything they want is an important learning experience.