Many adults find themselves in a cycle of debt that starts with a spending habit or some financial emergency. It gets complicated to manage the repayments within a limited budget. And to make the situation worse, we take one more crushing debt only to pay the instalments of other liabilities.
There is no easy way to escape the situation because you need to repay the debts at any cost. Even a few missed payments will take a serious hit on your credit history to make future borrowing difficult. In this article, we have mentioned a guide to help the people buried under a pile of debts to get rid of them.
- List the Debts
You need first to find the amount that you need to repay to different lenders. This will help you create a budget and repayment strategy that will be discussed later in this blog. Create a list of debts, put the instalments, the total amount due, and interest in the next columns.
The debt list will also help you evaluate the spending habits and find unnecessary expenses. Your credit card bill is the ideal place to look if you want to find some needless purchases. Moreover, the significant expenses need another consideration such as refinances or selling out the item such as a car if you cannot afford it.
- Create a Budget
Once the list of debts is in your hand, you can create a budget to manage the instalments. It is time to cut the luxuries and other non-essential costs until there is space for repayment and some savings. You cannot live the same extravagant lifestyle that has led to this debt situation.
It will take some time to get used to the budget after reducing the expenses. You can use some smartphones application to record and track your every expense. It will also notify when the spending has crossed the allocated budget.
- Prioritise the Pending Payments
The repayment should focus on the pending payments to avoid some consequences, such as CCJ. Therefore, start with the payments that are either pending or on the verge of collection. Your credit history will get damaged if the lender takes action against those payments.
Moreover, you are already paying late payment fees on those payments. The settlement may save you some money it will make future lending incredibly difficult. Take written confirmation from the lenders if you are settling accounts with missed payments.
- Take Debt Consolidation Loan
If the repayment is difficult because of the series of debts, you can reduce them to one with a debt consolidation loan. These are online loans in Ireland for borrowers struggling with a debt situation. The interest rates are lower than some debts, such as credit card instalments or payday loans.
You don’t need a perfect credit score to avail of a debt consolidation loan. These loans are for the people struggling to manage something that has already damaged their credit history. You can visit a direct lender as the banks may not give a loan to someone with an imperfect profile.
- Save Money for Emergencies
You have faced the consequences of not saving enough money for emergencies. There is an endless cycle of debts with no exits without some serious cost-cutting. Therefore, start saving money to avoid the situation in future.
Even 10% savings from your savings will help you counter unexpected situations. We recommend money equal to at least 3 months of your paycheque in the account for these situations. Always automate the money transfer to your savings account from the salary to avoid spending the amount.
- Choose a Repayment Strategy
Debt avalanche and snowball are two famous strategies to repay the debt. The debt snowball strategy is used to target the small debts first to keep the motivation high. Many people quit the debt repayment strategy because of no quick result. This is where the snowball shines.
If you want to save money on interest rates, use the debt avalanche strategy. It makes the borrowers pay the highest interest rate debts first. However, it may take some to repay some long-term debts, and you might lose interest and motivation with no results in sight.
To sum up, it will take months or even years based on the terms of your debts to get some relief from the debts. You can use motivational quotes or posters to remind yourself of the cause of this lifestyle change. Nonetheless, it is okay to enjoy little success now and then with some milestones.