Dealing with Debt
Debt is very much a part of life these days, and we all take it for granted, but it can cause many of us untold amounts of stress and worry and can be just too much to cope with for some.
If you want to improve your debt situation, there are several things that you can do.
Open your eyes
The first thing you need to do is have a good honest look at your debts, which is intimidating if you have many, but is a necessary step in handling them effectively.
Come up with a list of all of the debts that you owe and take a note of the interest rates that are payable on each of them. Sort this list in order from highest to lowest interest.
If you have credit card debt and make only the minimum payments each month, you may be alarmed to find that your payment is only covering interest and is not actually affecting the debt itself. This is an extremely frustrating experience, as you struggle to make sure you meet the minimum amount each month, but do not actually reduce the amount of money that you owe. Annoying as it may be, thinking about this should motivate you to get the debt cleared properly.
It may not be a popular task, but an effective budget is a necessary tool in managing your debts well. Work out what you can really afford to pay towards your debts each month, cutting expenses wherever you can.
Once you have figured out what you can pay each month, over and above the minimum required payments for your debts, use this to target the debts that are costing you the most, i.e., those that charge you the highest interest rates. Focus on clearing the debts that you pay the most interest on first, working your way down the list as you clear each one in turn.
Change your ways
It may sound scary, but if you are going to have a realistic chance of sorting your debt situation out, you will need to try as far as possible to stop acquiring more credit, at least for the time being. Going ‘cold turkey’ like this may seem extreme, but the advantage is that you are not only more likely to clear your existing debts but are also less likely to get into further financial troubles in the future.
Adjusting your attitude to spending in this way will also allow you to develop a healthier relationship with money in general.
To this end, you should start thinking about how what you have been spending relates to what you have been earning. It is so easy to get credit these days that many of us forget to do this, and our spending habits get out of control.
If you try to restrict the amounts that you spend to levels that are reasonable within the context of what funds you have, you will be sowing the seeds for a much more balanced financial future.