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.