When I was younger, I got myself into problems with debt and was lucky enough to work my way out of it with some help from my parents, even then it was a significantly stressful and anxious time. Hopefully this guide can help anyone in that position and work towards regaining financial stability.
1. Assess Your Financial Situation
List all your debt – Credit Cards, Loans, and other liabilities, collate the interest rates and minimum payments etc and give yourself a clear picture of what debts you have and where you need to prioritize.
2. Create a Budget
While I don’t really like budgets it is helpful when ensuring you are looking to identify where your money goes and seeing where you can cut back to allocate to your debts.
3. Prioritize Your Debts
There are a couple of strategies to sort your debt priority, You have the avalanche method which focuses on clearing the highest interest debts first, hence saving money on interest but may look like debts are hanging around, or the snowball method that targets the smallest debt first and builds momentum and motivation by seeing debts disappear.
4. Negotiate with Creditors
Always a difficult proposition admitting to your creditors you are having difficulty but they may be able to lower interest rates, waive late fees, or offer a plan – They want you to pay off your debt!
**5. Consider Debt Consolidation
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Consolidating your high interest liabilities into a lower interest rate loan can simplify your payments and potentially save you money. Make sure you do the research and don’t end up paying more if possible.
6. Seek Professional Help
There are charities and counsellers available to help you if you feel you are overwhelmed, they can guide you through a lot of the above processes and help you with negotiations and planning. In the UK we have StepChange Debt Charity as an example.
7. Avoid Accumulating More Debt
It seems obvious but believe me its harder than it sounds, transferring a balance to a 0% credit card is great, but not if you then start using it for normal purchases. Focus on your budget and live within your means as much as possible.
8. Build an Emergency Fund
When its possible, start building an emergency fund, putting the amount you were using to pay off your previous debt away will give you a start if something unexpected goes wrong, building up 3-6 months of essential expenses will take a lot of pressure off.
9. Stay Motivated
This process is a challenging one, setting small achievable targets and celebrating progress is essential to keep you motivated. Remind yourself often how the benefits of being debt free will improve your wellbeing.
10. Educate Yourself
Understanding debt and personal finance will help you in many areas of your life and day to day living, The more you know the better equipped you will be should another problem arise.
Dealing with debt requires a strategic approach (or a lottery win!) and patience, it requires attacking the problems head on and not avoiding the issue, it can be very difficult discussing your debt with others, but it is a start to getting you on the right route.
None of the above is financial advice, it is for educational purposes and you should always do your own research.
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