If you are struggling with your finances then the first step is to take control and take stock. Working out exactly what you owe to who can be shocking but it really helps you to understand what you can and can’t afford. Once you understand what you owe then you also need to work out what other outgoings you have so you can consider the different debt management plans so that are available to you. You can learn more about how to manage your debt but facing it is always just the beginning.
How much do you owe?
Write down how much you owe in total as well as the minimum monthly payments that you need to make. Work out which debt is costing you the most in interest as this will become the debt that you look to pay off quickest. Loans tend to have the lowest interest rate and a set monthly payment. Whilst credit card debt is harder to clear as the interest rates are higher and for every payment you make your balance won’t go down by the full amount as interest is added monthly. Some people never know how much they owe until they write it all down. They just know that the pressure of the payments is too much.
How much can you afford to pay?
The key thing about a debt management plan is to manage your debt in an affordable way. This means creating a budget and sticking to it. Most companies are really understanding so if you phone them and let them know that they are having difficulties with then they are usually able to help you come to an arrangement to pay and sometimes to freeze interest. Doing this can give you a little bit of breathing space when you are first starting a debt management plan as you get to grips with a new budget.
When creating a budget make sure that you factor in annual expenses and put something aside for emergencies. You also need to look back on all of your receipts and bank statements to make sure you are not missing anything as you don’t want something to surprise you later down the line.
Working out what to pay off first
There are different methods and outlooks on how to pay off your debts and you need to decide on that plan that works for you. You will need to keep up with all of your minimum payments but anything extra should go towards paying off your debts. Whether you choose to pay off your smallest one first so you can close it off and move on to the next one or pay off the one with the largest interest rate the choice is yours.
Do not get into more debt to pay off debt
So many people are tempted to take on another loan or another credit card to pay off the debt they already have but it often just ends up in a debt spiral. Although taking a loan on a lower interest rate with a smaller monthly payment can be a good idea you do need to make sure that you then close the accounts that you have paid off so you don’t end up in a worse situation.
Taking control of your debt can be scary but facing it and learning how to manage it is the only was to move forward.