Getting into debt is easy. Getting out of it is not, but it can be done.
For most of us in the 21st century, debt is a way of life. In fact, it’s becoming increasingly easy to rack up debts in more than one form. Most people now have an overdraft feature, at least one credit card, and a number of loans. Here are four things to remember on the journey towards a debt-free life:
- Clear debts before saving. The interest paid on savings is extremely low compared to the amount charged on borrowing. That’s why, as important as it is to start saving, it makes sense to clear your debts first.
- Prioritize your debts. List all your debts and work out which ones are costing you the most.
- Keeping your home is the first priority. A mortgage company will want to listen if you have difficulties and will work with you to find a solution.
- Repossession is generally a last resort, but don’t delay in contacting your lender. As with any debt, you are more likely to make matters worse if you just ignore it.
- If you have bought goods on credit, you could find that they are repossessed via a court order if you have not paid more than a third of the total cost. It’s vital to contact the companies concerned and try to work out a repayment strategy.
- Credit cards should be next on your list. It’s likely that store cards will have the highest rate of interest. Contact the relevant companies to let them know your problems and how you propose paying. Cut up as many cards as you can, if not all of them. You can always get another credit card (though you may not want to!) once your finances are under control.
- Talk to your creditors Being in debt is something that happens to many people. Pretending it isn’t happening will cause far worse problems. While it may be uncomfortable to admit that you are having money difficulties, it’s important to make the call or write the letter.
Many larger companies now have divisions that specialize in setting up longer term arrangements to pay bills. Almost all companies are prepared to allow you to make smaller payments over a longer period of time.
Your creditors would rather settle out of court to avoid an expensive, time-consuming process. The quicker you speak to them, the sooner you can begin working together to get rid of your debts and begin saving money.
Don’t undo your hard work. Once you’ve paid off or consolidated debt, congratulate yourself.and make sure you don’t fall back into old habits. Get used to using cash for all purchases and shred the credit cards. People lived for centuries without them, so drop the idea that you need one “for emergencies.” Put away money in a savings account instead.