Being in debt can be a stressful experience. When creditors are calling every day and letters are arriving telling you how much you owe, your instinct might be to bury your head in the sand and try to forget about what seems like an unsolvable problem. However, this approach can only lead to more stress. Reclaim control over your situation by making a plan to get yourself out of debt and stay there. Follow these steps to take control of your debt and gradually shrink it away to nothing.
Know Your Situation
First, you need to face up to your debt. Find out exactly how much you owe to each creditor and the interest rates or charges that apply to each account. Your aim should be to pay off the debts with the highest interest rates or charges first.
Next, make a list of your monthly income and expenses so you can see how much money you have to spend on debt repayments each month. Take a look at your regular expenses to see where you can cut back to free up some cash for paying off your debt. Could you cancel a TV subscription or gym membership that you rarely use? Or cut back on grocery bills by shopping at a less expensive store?
If high interest rates are causing your debt to spiral out of control, refinancing could be a good option for you. Consolidate your debt by taking out a single low-interest loan, which you can use to pay off all your other debts. When shopping for a low-interest loan, it pays to consider nontraditional sources of credit, including peer-to-peer lending markets such as BTCjam. These markets can often provide better interest rates on unsecured personal loans than the typical bank.
Negotiate With Creditors
If refinancing is not an option, then you may be able to get a better deal by negotiating with each of your creditors individually. Phone creditors and explain that you are struggling to pay back the money you owe. You may be able to get them to agree to a new payment plan that reduces the amount you pay each month.
Keep Up Repayments
Once you have consolidated your debts or negotiated new payment terms with your creditors, it is important to stick to the agreement you have made. One of the advantages of consolidating debts is that you only have to make a single repayment each month. Note the repayment date prominently on your calendar and set an alert on your phone or computer to remind you to make the payment on time. If you forget to make payments, you may face additional fines or late-payment charges, so it is vital to keep up with them until your debts are fully paid off.
Climbing out of debt is tough, so you won’t want to fall back in. Stay out of debt by making a budget of your regular income and expenses and stick to it. Put some money into a savings account each month, so you have funds to draw on in an emergency, avoiding the need to borrow money. If you do need to borrow money in the future, use loans with a low interest rate, such as peer-to-peer unsecured loans, rather than turning to high-interest rate options such as credit cards. If you follow these tips, you can avoid falling back into the spiral of increasing debt.