Significant debt hanging over your head will cause one of the most unpleasant feelings there is. As well having to cope with the pressure of knowing that any emergency or unforeseen circumstance could prove to be the straw that breaks the camel’s back, mounting debt can also prove to be extremely expensive as the amount of debit interest begins to spiral. A positive and proactive approach can reap great rewards though and by following the 5 steps below, you will be able to take significant steps towards finding financial freedom.
Step 1: Take Stock of Your Debt
Working out the gull extent of your debt may be the very last thing that you want to do but now is the perfect time to face those unopened statements and bills. It is not possible to take steps towards paying off your debt if you do not know exactly how much you owe and who you owe it to. Once you have taken everything into account, you will be able to work out which repayments must take priority, i.e. mortgages repayments will stay at the top of the list, closely followed by the debts that have the highest levels of debit interest.
Step 2: Make a Budget
We all love to spend freely but the chances are it was your free spending that got your in debt in the first place! Moderation is the order of the day, and you must now decide how much you actually need for daily life, fun, savings and to service your debt repayments. There is every chance that you will have to make some cutbacks until you get your debt in order. Do you need to eat out every week? Do you needto go to the cinema every week? It will hopefully not be a case of cutting back completely, but some concessions must be made in order to free up more money to use towards repaying your debt.
Step 3: Get a Consolidation Loan
One of the most important parts of paying off debt is making sure that you maximise all of your money. As such, it often makes little sense to pay the minimum amount of several different types of debt each month, when the option exists to take out a loan to pull all, or most of your outstanding debt together. Guarantor loans can offer the perfect debt consolidation solution. They are available to anyone with a bad credit rating, meaning that if your debt has reached a stage that your credit rating has taken a nose dive, you will still be able to apply for this type of loan.
Step 4: Paying Off Your Debt
By utilising any extra cash that you may have created when deciding on your budget, you will hopefully have the opportunity to increase the payments that you are making. Target your most expensive debt first and you will quickly begin to see the total amount that you owe begin to tumble.
Step 5: Stick to Your Plan
Steps 1 – 4 will only work if you refrain from overspending once you pay off your debts. Once you pay off one set of debts, move the payments to the next set in a waterfall payment process until all of your bills are paid off. Once you are debt free, you can move those payments into savings or investments.
Amanda Gillam is Solution Loans's General Manager and has been since 2009. She is also a prolific writer on personal finance issues, and has been quoted numerous times in articles published on 3rd party websites and in press releases. Her...Read more about Amanda Gillam