How I Dealt with my Debts
Like most people nowadays I accrued a few debts over the years, credit cards, personal loans, store cards. I realised that the charges on these were never worth the convenience of instant cash so I resolved to pay them all off. Now, I am no financial expert - far from it in fact - but I have now paid off over $5000 of debt and have a very affordable payment plan for the $2000 I still have to pay so I thought my personal experience my benefit you.
Coping With Debt
In this disposable age of instant gratification it is far too easy to be tempted by that Xbox 360 or Caribbean holiday even if you can't front the cash. It is just so easy to get multiple personal loans and credit cards and worry about the cost at a later stage. In my experience it doesn't matter how good the deal is that tempts you in the first place it will cost a small fortune if you pay for it on credit. Let's say the average credit card will charge you about $30 interest per month for your $2000 credit card bill (o.k. that's a rough estimate, like I say, I'm no expert) - you have to ask yourself if you can afford to throw away $30 a month just for the sake of a new toy or holiday or whatever your indulgence. My advice would be to cut up your credit or store cards immediately and only use cash you have to hand - so many places will accept the newer debit cards now that there is no real reason to have a credit card, even the internet, phone sales and overseas will take debit cards. If you have accrued some debts these tips really helped me to pay off my debts:
Consolidate your debts
I know I'm stating the obvious here but it is far easier to pay one bill than six and DO NOT under any circumstance use this as an excuse to go get a new credit card!
Pay off more than the minimum amount
If you only pay the minimum amount required by the credit card company (or whoever your debt is with) it will take an eternity to pay it off - you will only be paying a tiny amount more than the interest. It is seriously depressing to see $50 a month (for example) disappear from your wages and your statements barely moving at all so tighten your belt and pay off as much as you can possibly afford even if it means getting Tesco's budget baked beans instead of Heinz!
Move your credit card debt
Take advantage of the six months or a year interest free balance transfers. This can be really hard work because it means reading lots of fine print and moving your balance every six months or year but not paying interest will allow you to pay a lot more off your balance.
Prioritise your debts
Thankfully I was never so heavily in debt that my household bills were affected but even so I had to prioritise my debts to make sure the essential ones were paid first - you can prioritise in two ways; either so that you pay off the most expensive debt first or so that you pay the bills that won't mean losing the roof over your head or electricity supply. Obviously the prioritisation you choose will depend on the extent of your debt!
Talk to your debtors
This won't apply if your payment plan is affordable to you and you can always make monthly repayments but if you are really up the proverbial creek then talk to your debtors before you miss a payment. You will be in far less trouble if you phone them and talk about your difficulties than if you start missing payments and they do not know why and of course, if you are in debt the last thing you need is bills for 'administration costs' from missing payments.
Come up with a payment plan
If you consolidate your debts into one personal loan you can talk to your bank about payment plans and arrange repayments according to your circumstances. I reckon you need to consider a couple of things though - firstly you need your payment plan to be affordable, i.e. you need to keep enough money for yourself for groceries, petrol, etc and secondly that you want your payment plan to pay off your debts as quickly as possible. One tip I found really useful was to open a second bank account and use it exclusively for bills. Calculate how much your monthly bills are and set up a standing order from your first account for a little more than that amount then move all your direct debits for those bills across to your second account. This serves two purposes; firstly you will always know that your bills will be paid and that there will be enough money in that account to pay them and secondly you will know that all the money in your first account is for you to spend without having to remember to leave enough in there for x or y bill or direct debit - do make sure your standing order to move money from first to second account is always on pay day!!
Increase your income!
I know it sucks but getting a second or third job and increasing your income is a sure-fire way to help pay off those debts. There are plenty of jobs you can do in the evenings or weekends, or from home, or in your spare time and the more you earn the more you can pay off and the sooner you can clear those debts and start enjoying your wage for yourself again.
So those are some tips that helped me to manage and pay off my debts. The experience has completely changed the way I look at my finances now - I always prepare for the future and as a consequence I actually can afford to make the odd impulse purchase and I think it feels a whole lot more satisfying to actually pay for it completely without having to wait for the credit card bill to ruin the fun! I don't use credit cards at all now even though I have two! So be patient and have the complete payment of your debts as your aim even if that means making a payment plan for the next 5 years, it will be worth it.
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"This is all great advice but what if you're $30k+ in debt from student loans as well, and unable to find work? Obviously welfare isn't going to cover debt and bankruptcy is a bad way out. Any suggestions for finding or making money to cover your debt other than working 3 jobs?"