Money is the root of all evil! Especially if you don’t have any, you’re up to your eyebrows in debt and can’t make ends meet.
Each person is different and has a different set of circumstances so the suggestions on this page will need to be tailored to your own needs. I cannot offer advice but, follow the suggestions, make them work for you and you could be totally debt-free within a short time.
Fail to Plan then Plan to Fail
One of the major benefits of creating a plan is that it can help to remove some of the stress. By having a good plan you’re moving in the right direction and doing something positive so you’ll feel better about it.
The first thing you need to know is how much do you owe in total. Your outstanding debt. So get every single credit card statement, store card statement, bank loan and overdraft statements, rent or mortgage arrears statement, utility bill arrears, pay-day loan statement. Open the letters you’ve avoided opening or hidden. Absolutely everything you owe money on. It doesn’t matter how big or small. Everything. It can take courage to get everything together but you must do it to succeed.
On a piece of paper write down each item, how much is outstanding, what the monthly payment is and the interest rate. Note, if you have a mortgage and, possibly a car loan, you only need to note down the arrears and monthly payment. You now have a total monthly expenditure on your debt. This is the amount you need each month to “service the debt”.
Telephone each and every creditor and try to arrange a lower monthly repayment without increasing the interest rate too much. Some will work with you, some will be difficult. Don’t worry about the difficult companies as you’re going to be rid of them fairly quickly!
Once you’ve negotiated your repayments update your figures. With luck, you should have some money “left over”. Do not spend it, it is the key to getting out of debt.
Now let’s look at getting control of your “plastic”
Every card (Store/Credit card) which has a high interest rate, cut up. destroy or dispose of. You won’t need them but you still have to pay off the outstanding balance.
Keep one Credit card, the one with the lowest interest rate, for emergencies or for large ticket purchases where you will be covered by the Card’s insurance scheme. Don’t keep it on you. Put it somewhere safe and only use it when absolutely necessary.
So in your wallet or purse you should have just one card, your bank debit card.
If you can get a 0% or very low interest loan, unlikely, then this could help you. You can use this loan to pay off as much debt as possible. Start with the debt with the smallest balance and work upwards. The amount you spend on “servicing this new loan” must be less than the amount you spend servicing the debt you are paying off otherwise you’re no better off! So, for example, if the new loan costs 50.00 a month then you must be paying off debts where the total monthly payments are (much) greater than 50.00 per month.
Make sure you always make the minimum monthly payment for each outstanding debt.
The Snowball effect
Now put every penny you can afford each month, including the month you have “left over” from reducing your monthly payments, into paying off the debt with the smallest balance. When that is paid off, use the money you were paying on that loan and and add it to the amount you pay off on the next smallest outstanding balance. Do this until you’ve paid off everyone. It’s called “Snowballing” because you start small and finish big.
What happens is that, as each loan is paid off you’re increasing the amount you pay off on the next loan until, finally, you’re able to throw everything at the loan with the largest outstanding balance and, therefore, pay that off quickly as well. By doing this you will clear debt much, much quicker.
As you clear the outstanding balance off each Card or loan, close that card or loan. Only ever keep one card: the one with the lowest interest rate. Close all all the others. Remember, by paying off all your debt regularly like this, you should be able to get a much better interest rate on your last remaining credit card or change to one with a much lower rate.
Now that you’re debt-free, always pay off the outstanding balance on your last remaining credit card at the end of each month. Never, ever just pay the minimum or you’ll be on the slippery slope back to square one.
You can also then use the same system to pay off the car loan, the mortgage on the house etc. as well, provided there are no early repayment penalties or the penalties aren’t too onerous.
Remember, if you pay for what you want out of your savings, it’ll cost you very much less than using credit. And remember, by using Visual Accounts you have full control over your finances.
I want to help you so, if you have any questions about Sorting your Finances, please leave them below.