As a nation, we’re getting more and more in debt each year, and some of these debts can come with hefty interest rates and fees. So it is easy to see how our finances can quickly and easily spiral out of control. I’m not a financial expert but I wanted to just put a few ideas out there to anyone who struggles with debts and would like to take some control back.
How Do You Take Control?
Well, you start off by doing your research, it shouldn’t take too long but it will give you a better picture of where you stand. Even if it looks awful once you see it all on paper, don’t panic, you knew it wasn’t great and you are making positive steps to change it. So,
Number one, do a thorough income and outgoings list. These lists need to include EVERYTHING there is no point in conning yourself into thinking you have more that you do, it will set you up to fail.
Number two, check your credit score. Your credit report will provide you with a score. The score gives you an indication of how your finances compare to others in your areas and of how financial organisations may categorise you if they were to do a search for you. It also provides you with a list of all the financial organisations you are connected to, who you have debts with, what your defaults look like and your total amount of outstanding debt.
Now you know where you stand, you can start the improvements.
Creating Your Own Plan.
Now you have had site of your financial position as a whole, make use of your free credit report by using it to assess what action to take first. If you want to increase your credit score slightly then making simple changes like ensuring you are on the electoral roll, contacting companies and closing old accounts and disputing any discrepancies on your report can all help boost your score. However, if you really need to put a consolidation plan in place here’s some tips on where to start:
Balance transfer credit cards: If you are racking up more debt, not by spending but by accruing a load of interest and you have a good credit rating, it might be a good idea to consider a 0% balance transfer credit card. This will allow you to consolidate your credit card debts onto one credit card of which you will pay 0% interest for a fixed period of time. Two things to be very careful of here, one is that you must remember to ensure you switch to another 0% card prior to the end of the fixed period (if the debt is not already paid off) and two is that in order for it to work as debt consolidation and actually minimise your debts, you have to keep paying the full amounts off. If you get tempted to make minimal reduced monthly payments all you will be doing is extending the length of time you have your debt.
Mortgages: For most people a mortgage will be the largest most imposing debt they will ever have but because it is a long term debt, quite often we just allow the banks to make changes to the terms of the agreements, shift our mortgages and we allow ourselves to leave it sat there in the background unaware of how much interest is being accrued. How much of our hard earned cash is really being paid into buying our home and how much is going on interest? If you don’t already know, now is the time to check and then shop around, you never know, it might be time to move from our ‘trusty’ local bank to one that can offer us a much better deal and ultimately make quite a dint in one of our biggest debts!
Low interest loans: If you have credit cards appearing on your credit report it’s important that you find out the interest rate being charged if you do not already know. The company contact details will likely be on your report if you don’t already have them, so you can always call to check if you don’t have all your original documentation. If you find that the credit cards have particularly high interest rates, it may be worth looking into getting a low interest loan to consolidate the amount of debt racked up on the cards as loans have a set payment plan it’ll also be much easier to manage than your cards.
To consolidate expensive credit cards
Talk to the companies: Armed with your income and expenditure call the debt collection companies. Ask them about making minimum payments and ask them their advice on any further deals they may be able to offer you. Occasionally and especially for long standing debt, collection agencies will take a slight hit on the amount of return from you by accepting a full and final settlement, it won’t always be on offer and you have to be careful about the detrimental effect on your credit rating but it is worth asking those chasing the debts for potential options for settlement, you might be surprised at how helpful they will be if they think they can wipe your debts from their books sooner rather than later.
Not Comfortable Going It Alone?
If you are considering using a debt management company then do your research first, make sure they are reputable, make sure you have a good idea of the consequences (ie effect on your credit rating) of any plans they suggest, and make sure you have a good understanding of the fees the company will charge. The clip below will start you off thinking about how debt management companies work so you can expand your research to make sure it is the correct choice for you.