It’s easy to get into debt but it’s not so easy to get out of it. Most people innocently spend money they’ve borrowed thinking it won’t be too much of a strain to pay it back. They never think about the things that could go wrong, like job loss or increased rates of interest. If you’re struggling for ways to get out of debt, take a look at the tips for a five-year plan below.
The key to getting on the right track with your debt is to stop creating more debt. You’ll never be debt free if you aren’t willing to stop debt in its tracks. That means putting the credit cards away, stop shopping on finance and never add to existing loans. It can be difficult to live on the money you have as an income when you have outgoings paying off debt but creating debt to pay off debt will only dig a deeper hole.
Save an Emergency Fund
Many of us fail to save for emergencies. One day the car will break down or the washing machine will stop working and you’ll suddenly be forced into finding an unsecured personal loan to fix or replace the problem. Putting aside money for a rainy day will mean you won’t have to borrow anything if something should go wrong. It also means you won’t automatically be stressed about the situation. Having an emergency fund will give you peace of mind all the time.
Ask for a Lower Interest Rate
Not all lenders are the devil. Most lenders just want to see their money back, instead of having to go through other channels, like debt collectors, just to get what they’re owed. Contacting your lender and telling them that you’re having difficulty in making the payments could result in a lower interest rate. That means you’ll be able to pay off your debt quicker. Lowering service charge fees and interest rates will mean more of your monthly payment will go towards lowering your debt.
Work on the Highest
Whether you’ve racked up the highest amount of debt on a credit card, catalogue or loan, it needs to go first. You’ll be paying the most money on your highest amount of debt, so tackling that first will mean you’ll have a significant amount of disposable income when it is gone. Reducing the highest amount of debt often means paying more than the minimum amount due. However, paying smaller amounts throughout the month when you have spare money can also help reduce the debt.
There are times when lump sums come in the form of tax rebates or inheritance. It’s always tempting to spend these lump sums on things you’ve been wishing for but clearing your debt will be better in the long run. You can sometimes get a settlement fee, which is lower than the amount you owe. Contact your lenders and ask them what your settlement fee would be and try and pay your debt in full.