Eliminating Debt, Step by Step
Being in debt is a scary and often embarrassing situation that many people prefer to simply deny and hope will go away but as overwhelming and isolating as it can feel, thousands of us are in the exact same situation. The simple truth is that the only real way to eliminate debt is to tackle it head on by implementing a number of crucial steps to reduce the pressure and get you back on the road to financial freedom.
Step one: Accept your debts
With so many people ignoring their debts for so long, the pressure can distort the situation and make you forget the true extent of the problem. Working out exactly how much you owe and to whom it is due can not only give you a sense of focus and clarity but reduce the level of stress immediately by making the situation feel more under control. It is often best to organise them in order of priority; tackling the most overdue debts first.
Step two: Monitor your spending
Once you know how much you owe to people in the long-term, you need to determine how much you are spending in your everyday life, on everything from food to transport. This can highlight important areas where you are overspending and help you make simple cutbacks.
Step three: Make a budget
Once you know how much you need to live on each week, you can draw out a budget for your food shopping, electricity bills, heating, etc. and start putting aside your surplus cash to immediately go towards reducing your debts.
Step four: Don’t borrow more money
Paying off your debt to one source by getting into debt to another is not the answer. Taking out additional loans or credit cards will simply land you with further monthly payments that are often added to by hidden extras like Payment Protection Insurance that boost the amount due, putting you in more debt than you ever anticipated.
Step five: Boost your income
If possible, try and increase the amount of money you have coming into the household. Whether this comes from you or your partner working extra hours, checking to see if you are entitled to any governmental benefits or by encouraging your teenage children to get a part time job to fund their own expenses; the more money you have left available at the end of each month, the more that can be put towards clearing your debts.
Step six: Ditch the cards
Credit cards and store cards may seem like the ideal solution when money is running low but they often act as temptation to buy what we simply cannot afford, only to panic when hit by the hefty interest rates down the line. Cut them up if necessary or give them to a loved one for safe-keeping but however you go about it, start getting into the habit of paying for things with cash; that way you never spend above your means.
Step seven: Contact your creditors
In some cases, the best way to reduce the pressure is to simply contact your creditors and explain that you are having financial problems. They may respond sympathetically by offering to lower your monthly repayments or give you an extension on your deadlines; you will never know if you do not ask.