Debt – it’s something that we’re more often than not, uncomfortable in discussing. The fact of the matter is that most of us associate debt with situations so far from our own lives – such as gambling and addiction issues – whereas it’s actually very easy to get into a spiral of debt.
Did you know that one missed payment will negatively impact your credit score? Say you’re late on one of your monthly payments – you’re already in debt. If you then struggle to pay it off, and continue to take out further loans, then you can very suddenly find yourself in a cycle of debt that it’s hard to break free from.
The good news is, that debt doesn’t mean it’s the end of the road. In fact, burying your head in the sand is the worst thing you can possibly do in reaction to debt. Today, we’re going to give you a helping hand by giving you our top tips that will aid you in paying off your debts more quickly.
Figure Out How Much You Owe
It doesn’t matter whether you’re in credit card debt, or have taken out SME loans that you can’t repay – the most logical first step is to sit down and figure out exactly how much you owe.
Without knowing the exact number that you owe, it can be difficult to adjust your living and organise your finances accordingly.
Of course, it’s also important to consider the interest rate in each of your repayments. A good way of noting this down is by separating a piece of paper into sections, and noting down all of the money you owe – plus the interest rate – in different sections. It might sound silly, but actually seeing it in front of you physically will reduce how overwhelming it seems, and will help you to see the bigger picture more clearly.
Prioritise Your Debts
Of course, all debt needs to be repayed – and this is what we’re here to advise on.
However, some debt is more urgent than others. For example being in mortgage debt is a far more high-risk situation than owing a friend some money. We’re going to try and simplify this for you by splitting different types of debt into two categories – high priority, and lower priority.
- Owing mortgage debt puts your home at risk of being repossessed, and therefore should always be considered high priority.
- Any court fines, should that be applicable to you.
- Child maintenance if you pay it.
- As well as mortgage – rent.
- Any income tax.
- Overdrafts and Credit Card bills.
- Any loans from banks or building societies.
- Payday loans.
- Debts with catalogues or shopping subscriptions.
As you can see, there is a difference in urgency between the two lists – but remember that ALL of these debts should be a priority. Some just have slightly less pressing consequences than the other. Regardless of this, they’re all important – so don’t think just because your debts aren’t “high priority” that they don’t matter.
Try to Come to a Payment Agreement
Before panicking that you can’t pay your debt at its current rate, meet with your lender or at the very least, give them a call.
You might be surprised at the results that can come from speaking with your lender and coming up with a deal that works for you both. If you can elongate the term of your repayments, then you might find you’re able to pay a little less off each month. It might take a bit longer, but it does mean that you’re more likely to be able to pay it off regularly, and won’t miss payments.
This won’t always be a viable option – it’s entirely dependent on the type of loan and agreement you took out in the first place – but it’s never a waste of time to speak with your lender about it.
Try Budget Living
Last of all, but by no means least, try living on a budget of sorts in order to have more spare cash to pay off your debts.
Living on a budget simple means evaluating your financial situation, and spending accordingly. Figure out your monthly incomings and outgoings, and therefore how much disposable income you have at the end of that. This is a great way of working out where you can save, and setting yourself specific figures to live off on a weekly or monthly basis.
Knowing your finances is half of the battle. Remember that burying your head in the sand will never improve the situation – so act and take a stand. You’ll be please you did it in the long run!