Monday, 25 Nov 2013
Personal finance is a tricky business, and even the most clued up individuals can fall into traps along the way. Unfortunately, some finance companies don’t make life easy, and often speak in a language that’s difficult for those outside the financial world to understand. This lack of understanding, combined with a variety of other factors, can leave many people in debt that they can’t see a way out of.
Be brutally honest
The only way out of debt is to be brutally honest about how bad the situation is. This honesty doesn’t have to be to anyone other than yourself, as one of the main problems people face when trying to get back in the black is denial, but it’s important that you are aware of the reality of your situation. Make a list of all the amounts you owe, and find out from your creditors what the repayments are, what the interest rates are and when they need to be paid. If you think you might have forgotten something you can find all your credit details as well as your credit score from an online credit check company like Experian Credit Expert. From this list you can create a repayment schedule and negotiate with creditors for lower payments if needs be.
Don’t borrow more
Debt is a slippery slope, as it is all too tempting to borrow elsewhere to fund repayments or general life costs when your debt has gotten out of hand. This is an incredibly short-term solution and causes big problems almost immediately after the initial relief. If you can’t pay back your current creditors, then taking on any more is reckless and will only exacerbate the issue. The only exception is if you are transferring some of your existing debt to a lower interest scheme so you can tone down repayments. This might be a consolidation loan, where all your debts are then taken care of in one place, or a balance transfer on a high rate card to a lower rate. Take independent financial advice to explore your options but don’t be tempted by offers to take on more credit when you transfer, this will just take you further down the debt hole.
There are very few points in life when saving isn’t a good idea. After all, from childhood through to retirement, you are always taught to try and keep something by for a rainy day, or for the future. The exception to this is when you are in debt. If you are repaying credit, and, more often than not, the interest on this too, you are not in a position to put money aside. The interest rates on savings are not great at the moment, whilst APR’s on loans are still high. The amount you gain by having savings, would therefore usually be better spent paying off part or all of your debts, leaving you free to save with a clean slate once you are debt free.
Debt can be very scary, and it causes all sorts of health and stress issues if left un-tackled. The first step is to realise that you cannot manage your financial situation, and to start looking at how this might be fixed. Ask for help from professionals if the situation seems insurmountable, and don’t hide from it as it will only get worse. As bad as debt feels, the feeling of getting rid of it and being in the black once again is the same feeling in reverse – and certainly something worth striving for!