Debt

3 Mistakes People Make When Trying to Get Out of Debt

If you are dealing with debt problems, you are not alone. Millions of people across the country are facing difficulties repaying their loans. Irresponsible use of loans, changes in your income, the economy, and even emergencies – and unexpected expenses – often lead to you losing the ability to repay your debts on time.

While the problems are not uncommon, not everyone can solve their debt issues immediately. Dealing with multiple debts is both daunting and challenging. You may end up making mistakes when trying to solve the problems, and those mistakes could lead to more problems in the future.

Worry not, because the most common mistakes can actually be avoided easily. To help you deal with your debt problems more effectively, here are the 3 mistakes to avoid and how to best avoid making them. Let’s get started!

1. Not Recognising the Problems

One of the worst things you can do when you are in trouble with debts is, well, thinking that you don’t have debt problems. It is easy to think that you can afford the loans you have to repay, especially when you don’t fully understand the situation you are in. Besides, you only have small amounts to pay every month, don’t you?

This is the root of worse problems with debts. Thinking that you can afford your existing debts while you are already in trouble will only put you in denial. The longer you deny that you have debt issues, the more difficult it will be to solve the problem.

What you need to do is a complete audit of your own personal finance. Start listing all of the debts and details associated with those loans. Write down the monthly repayment amount, interest rate (and interest amount), the cost of missing a payment deadline, and other details you can find about the loans.

Calculate the total amount you have to repay every month and compare that amount against your income. This is your debt-to-income ratio. If you are spending more than 30% of your income to repay debts, you are in the high-risk classification. If the amount is more than 50% of your income, you have to be willing to admit that you are in trouble.

2. Trying to Borrow More to Survive

Another common thing people do when they face debt problem is borrowing more money to stay afloat. This may seem like a good idea when you desperately need cash for debt repayments and other expenses, but what you are doing is digging yourself an even deeper hole. At one point, the hole will be too deep to climb out of and you no longer have viable solutions to use.

The moment you start noticing difficulties in keeping up with loan repayments is the moment when a complete audit – like we discussed earlier – is needed. Instead of immediately seeking new loans to take out, take the time to understand the situation.

That is an important first step to make. At the very least, you can be more careful with the next loan you take out. You can review your available financing options better, compare costs and deals more objectively, and select a loan that suits your specific needs rather than going for any loan you can find.

3. Sticking with Your Spending Habits

Let’s face it; you have loans to repay and spending £5 on coffee and snacks every day is the last thing you want to do at the moment. That £5 may not seem much, but it is still money you can save and allocate for repaying your debts.

After a complete audit of your debts, it is time to take a closer look at your expenses. Write down every expense you make no matter how small it may be. Review your expenses for the month and you will soon find expenses that you can cut, mainly the non-essential ones.

Expenses are easier to deal with because you can choose to save on any of the non-essential ones. Anything from cutting your Netflix subscription to bringing your own lunch from home could lead to a substantial amount you can allocate towards your debts at the end of the month.

While you are at it, find ways to reduce the money you spend on repaying debts. When you have multiple credit card bills – expensive ones – to repay, for instance, you can convert them into a personal loan that is cheaper and easier to manage. You save on interest and other charges along the way, which means you can allocate the amount you save to repay your loans faster.

Despite the wealth of resources on how to get out of debt, these mistakes are still commonly found on the market. Avoid making the same mistakes, approach your debt problems with care, and solving the problems will be much easier to do.

Credit Cards

4 Strategies for Paying Off Your Credit Card Debts

Many people don’t realize this, but credit cards are not the most affordable type of loans on the market. Since credit cards charge you interest on a monthly basis, it is not uncommon for them to have double-digit APRs. There are also additional charges that you have to pay, including late fees, insurance, and administration costs.

On the other hand, credit cards are useful and rewarding. There are plenty of promotional programs and great rewards to earn from using your credit cards. You can still find a lot of benefits by using the credit cards you have wisely.

What if you are already dealing with issues repaying your credit cards? Solving those issues and paying off your credit card debts should be a priority. You save more money in the long run and can regain control over your personal finance. These 4 strategies will help you pay off your credit card debts in a more structured way.

Renegotiate

One of the first things you can do if you are struggling to pay your credit card bills is stopping the interest on your cards. This means closing the credit cards and negotiating a more manageable settlement with the credit card companies.

Many companies will work with you if you run into issues with your credit cards. As long as you have a good reason why you are missing your payment deadlines and not being able to pay the minimum amount, credit card companies will be more than happy to work with you.

Bear in mind that closing the credit cards and renegotiating a better deal are moves that will show up in your credit history. It may affect your credit score, so do it with consideration and make sure you settle for a deal that you can afford.

Consolidate

Another thing you can do is consolidating multiple credit card bills into one loan that is easier to manage. This too is a way to settle multiple credit cards at once. While you don’t have to close the credit cards you consolidate, closing the account after repaying the bills is still the best way to go. The last thing you want is going back to your old habits and exhausting your credit cards again.

Personal loans are handy for consolidating credit card bills. They are more affordable than most – if not all – credit cards, and they can be stretched across a long period of time to make your monthly payment more affordable. Personal loans are flexible too, so you can consolidate multiple credit cards even if your balances are substantial.

There are also consolidation loans designed specifically for this purpose. Some lenders will even help you negotiate a better deal with your existing lenders to make the whole arrangement more affordable.

Prioritize

For less severe credit card issues, all you need to do is prioritize. List all of your credit card debts and start prioritizing them. You can either use principal amount – starting from the smallest ones – or cost – starting from the most expensive credit cards – as you prioritize your credit card bills.

The credit card that sits at the top of your priority list is the one you need to repay first. Pay the minimum amount of other credit cards you own and allocate as much money as you can towards that priority card. The sooner you can settle that card, the sooner you can allocate the money towards repaying other credit card bills.

Starting with the cart that has the smallest principal amount is usually a good way to go. You can make a bigger impact by paying more than the minimum amount since the size of the loan is relatively small. This means you can settle the credit card bill sooner and then move on to the next one.

Trim and Reorganize

One more thing you should consider doing when you are struggling with multiple credit card debts is managing your expenses more meticulously. You have debts to repay; now is not the time for luxury items and unnecessary spending.

What you want to do instead is saving as much money as you can. The money you save must go towards repaying the credit card debts. Allocating an extra £100 that you save here and there can speed up the repayment process by more than a couple of months.

Allocating more also means saving on interest and other charges. The cumulative benefits are too good to miss. Besides, there are so many unnecessary expenses that you can trim. Once the credit cards are repaid, you can return to paying for coffee in the morning and dining out several times a week.

Dealing with multiple credit card payments doesn’t have to be daunting. You now have the strategies to use and the right steps to take. Get started with implementing these strategies as soon as you can and you will be credit card debt-free sooner than you think.