Wednesday, October 23, 2019

Struggling to Pay Off Your Debts? Here's Where to Start

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The financial world is a maze of unnecessary jargon, red-topped letters and small print. Many companies are happy to make demands but very few will actually help their clients to meet them. This is why getting into debt is so distressing: you can quickly find your finances spiraling out of control. 

The key thing to remember is this: if you bury your head in the sand, it will get worse. On the other hand, if you ask for help, you can get back to black and get on with your life. Debt doesn’t have to be all-encompassing and even if you are facing court action, you can get assistance with a debt lawsuit. But let’s not jump the gun, here’s where you should start. 

Understanding Your Money

Before you can begin to fight your debt, you need to understand your money and balance your income and expenses. Start by writing down all your income streams. For most people, this will be their regular monthly salary but if you are working a few jobs, have a side hustle or you’re freelance, it might be a bit more complicated. You should also write down how much you have in savings, if you have any. 

Next, write down your outgoings. The simplest way to do this is to look back at 3 months’ worth of bank statements and put each spend into a category such as loan repayments, fuel, groceries, insurance, rent/ mortgage etc. Adding all these costs together will tell you how much you are spending. If you subtract your spending from your income, you should, ideally, find that you have a bit leftover. Your spending will also reveal where you could be getting more for your household budget.

Setting Debt Repayment Goals

If you are struggling with debt, you probably won’t have a bit left over at the end of the month and you may even be spending more than you make. While this is obviously a problem, it can be fixed. 

There are 2 schools of thought for paying off multiple debts. Start by writing down your debts, beginning with the one you’re paying the highest interest rate on and moving down to the lowest interest rate. 

The stacking method suggests that you pay off the highest interest rate while making minimum payments on your other debts. Then once that debt is cleared, continue down the list, one at a time. The snowball method is very similar but instead of paying the highest interest, you pay off the smallest debt. 

Working Out Your Action Plan

While you are repaying your debts and working through your list, you should also look at ways to save money. You don’t want to get into more debt while you are working so hard to repay! Start by reducing your spending as much as possible by living as frugally as you can. If you have some spare time, you might also consider taking on a second job or a side hustle to raise some extra cash. 

Being in debt is stressful but it isn’t forever. Ask for help, work out your financial plan and start working one day at a time. You can do this. 

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