Personal debt as we all know is a real problem for many people these days. But one of the reasons people are trapped is because they don't take enough care in analysing their debts and repaying them in a sensible, logical and often far cheaper manner.
Here are 6 quick ways to help you get the better of your debts with the real aim to be debt-free in x amount of years - yes, it can easily happen if you work at it
1 - Always Try And Repay MORE Than The Minimum Amount On Your Credit Card
Want to know why Credit Card companies make so much money? Because many clients always repay only the minimum balance and those same clients don't believe that this is possibly the worst mistake in personal finance, check these working out;
- Mr A has a £3,000 CC debt paying an APR of 14.9%
- The minimum payment is usually 2%
- The first minimum payment would therefore be £60
- So how long to pay off this debt?
- 40 years!!!!!!
Now you can see why only paying off the minimum on a credit card is the worst and most costly mistake in Personal Finance. So what to do, simple pay off as much as you can reasonably afford each month (make some sacrifices) and DON'T increase the debt unless for say emergencies, and remember an emergency isn't the latest handbag or iPod etc.........
2 - Do a Deal With Your Family
So you owe £5,000 in debts paying interest at 10% or higher, perhaps even as high as 29.9% on some plans. But your parents, brother or sister has savings. These savings are likely yielding them between 4%-5.5% at the most. Why not borrow all or part of the £5,000 from your family agreeing to repay them with an interest of say 7.5%. This is a great win-win deal for both sides.
Work out how many years you'll take to repay them and get a mini-contract signed. The nice thing about borrowing from family is that you can often miss a payment here and there without causing too many problems, the loan or CC companies are usually not so accommodating.
3 - Do Some Detailed Research On Your Debts
Some people have debts all over the place at different interest rates. If this is the case get a pen and paper out and note the following;
- Amount owed
- Interest rate charged
- If it's a loan then note the length of it
- How much you're paying a month
- Minimum monthly repayment
Then concentrate on paying down the one with the highest interest rate first and possibly seeing if you can borrow more on the cheapest APR loan to repay the higher interest rate debt.
Also look to see if you can open anymore Credit Card accounts or other loans to borrow money at a cheaper rate. There are still a few 0% balance transfer deals available so check these out as well.
4 - Look At Your Savings and/or Investments (if any)
Some people will debt actually have some reasonable savings tucked away, if only for a rainy day. But these will be again yielding a maximum of 4%-5.5% before tax . You can therefore earn a double whammy if you use these to repay your debts. Why, because of the tax issue. Say your investments are yielding 5% then you're not going to get anywhere near that return because it's gross and not net.
Therefore it makes sense to use all or part of your savings/investments to pay off your debts. The only pointer that we'd give on this is don't use your Emergency Fund for this, that money is there for a real purpose. And if you haven't got an Emergency Fund or don't know what one is then read the InvestorProfit.com article (see link below) and also GET ONE AS SOON AS POSSIBLE.
5 - Contact Your Creditors And Ask Them To Renegotiate Their Terms
If you don't ask in this world you don't get.
Surprisingly contacting your creditors and asking them to lower the interest rate or repayment schedule works extremely well especially if your financial situation is not that good. For example, if you're earning £18,000 a year and have £10,000 in debt explain that you're in trouble and would rather try and sort things out now before things start to get nasty. Creditors in this kind of situation will often be happy to help because it still means they're going to get their money alongside some interest which is what good lending is all about.
What have you to lose anyway.....
6 - Call The National Debt Line
If you're really struggling then you want some people behind you who know their way around the debt jungle. The government funded National Debt Line gives excellent advice either over the phone or from the free guides published on their website.
We know many people who have used their services and only have good things to say about them. There are other similar organisations as well so you might want to contact them. One final point, NEVER deal with any company that offers to help you with your debts for a fee. These firms are sharks, pure and simple and they prey on peoples lack of financial education. Most, if not all of what they say can be got for no charge from the National Debt Helpline.
Summary
Debt is a problem and by it's very nature it won't go away unless you start to get serious about paying it back. So do some research, get your pen/paper out, make some calls to your creditors and/or the NDL and start to take control NOW!
Good luck with sorting out your debt problems!
See Also
