Introduction
Easy access to credit and buy now, pay later deals have caused increasing numbers of people to encounter debt related problems. This article offers some step by step advice to enable you to get out of debt.
Step 1. Recognise the problem
All to often it is easy to ignore mounting debts or final reminder letters because of fear or simply due to feeling overwhelmed by the enormity of a debt problem. The first step to getting out of debt is recognising that there is a problem and being prepared to do something about it.
Step 2. Communicate
a) Once you have accepted that there is a problem with debt talk to your spouse or partner or trusted friend/family member and explain the gravity of the situation This can often be a very daunting experience due to the fear of what others will think of you and the stereotypes that exist in society about individuals with debt problems. However, talking through the problem is essential.
b) If you feel that your debt problems will can be resolved within one to two months and that this is just a temporary blip, perhaps because of a pending pay rise, then you could consider two short term solutions.
I) Balance Transfers. These can be a great way to give you extra breathing space if you are experiencing debt problems. Most large credit card companies now offer you 0% for the first 6-9 months if you transfer your credit card to them. This can prove invaluable if you are struggling to keep up with credit card payments as interest can be a real killer.
Ii) Mortgage Holiday Period. Most big banks now offer what they term a Mortgage Holiday period when you sign up for the mortgage. This enables you to take a break from making payments for between 1-3 months enabling you a breathing space to get your finances back in order.
If you debt problems are more serious or your circumstances are unlikely to improve within the next 2-3 months then continue with the next step;
c) Contact those to whom you owe money and attempt to resolve the problem directly. It could be that there are a number of companies but either way most organisations are willing to work with you to deal with debt problems by reducing repayments, if you can demonstrate that you are serious about resolving the situation , rather than them risk losing all the money owed to them.
Ensure you get any agreement to reduce payments in writing as telephone conversations are not legally binding commitments.
If you are unable to reach a settlement through direct contact with debtors, then proceed to the next step.
Step 3. Seek Professional advice.
Sometimes debt is so substantial or an agreement cannot be reached with those to whom you owe money. At this stage it is worth speaking to a debt counsellor to discuss your options.
Step 4. Debt Consolidation
There are many debt consolidation companies and their role is to help individuals in financial difficulties to reduce payments by combining various debts into one larger amount but with lower monthly payment rates. A professional debt counsellor will often refer you to a reputable organisation as a next logical step, but alternatively you can research them online.
Step 5 Create a Budget
Most debt consolidation companies or debt counsellors should help you to produce a monthly budget based on your income. Take time to think about this thoroughly and list every piece of income and expenditure in any given month, but be realistic.
Even if your debt problem is minor it is a good idea to create a budget to help manage finances better in the future. There is a free budget template available at Microsoft and I have posted a link to it at the bottom of this article.
Once you have created your budget, stick to it.
Step 6 Prioritise Debt Payments
Once you’re agreed a payment schedule to get you out of debt, ensure that you prioritise those payments over any other.
Summary
This article has attempted to provide a practical step by step guide to getting out of debt. Attention has been given to the importance of recognising that there is a problem and ensuring good communication takes place to attempt to resolve debt problems quickly, where possible. Where agreement can’t be reached we have examined how to move forward by seeking professional support, consolidating debts and creating budgets to resolve financial difficulties as soon as is practically possible.
Debt Counselling Links:
http://myvesta.org/
Free Budget Template:
http://office.microsoft.com/en-us/templates/TC062062791033.aspx |
