Managing Debt

Sometimes we have no choice but to take out a loan and push ourselves into debt. It could be that we have a surprise doctor’s bill to pay off or our car has broken down and we need to fix it right away. No matter what the problem is there is always something that will push us into debt. Unfortunately many of us that are pushed into debt have a problem getting back out.

We have 9 useful tips that can help us to find our way out and to be debt free:

1. Set goals for yourself

It is always a bad idea to try to view your debt as one huge problem that you have to work your way out of. Instead start off by trying to get rid of a small amount. Pay a small amount on each bill – but pay more on one specific bill and make it your first priority to get rid of it.

For example try to focus on paying off your doctor’s bill first before you focus on your credit cards. This will help you to budget better your money more efficiently and it will give you more hope to work off the rest of your debt.

2. Understand the problem

Before you can fully finish off the debt you need to understand just how big the problem is. Examining our debt is one of the hardest things to do – but it is also one of the most important things.

Here are the questions you need to sit down and ask yourself:

- Find out who you owe and how much money is owed to each
- Find out how often you need to make the repayment
- Find out how much interest rates are
- Find out how long it will take to pay off each debt

This will show you exactly how far you have pushed yourself into debt and will bring you back into reality. In other words it will better help to motivate you to pay off as much debt as possible.

3. Find the right way to organize

When it comes to organizing your finances, one approach doesn’t work for all. I know someone who’s super-organized financially, but still works everything out using a pen and paper and storing papers in different-colored folders. You can also use special computer programs.
Whatever system you choose, if it suits your way of working, you’re much more likely to stick with it.

4. Get rid of loose paperwork

When you sit down to try to organize the mess throw away all of the unnecessary paperwork. You don’t need to be working with a huge mess of paperwork. Instead throw away all of those old bank statements and other paperwork that will not help you. Remember to shred it before you throw it.

You will notice that your stack of paperwork is much smaller and you will find it easier to work on your debt problem.

5. Pay off the debt with the largest APR first

Focus on the debts that charge the highest rate of interest. Many people are not aware of the high interest rate that are attached to most of their debt. When they do find out they will realize just how much money they could have saved if they had paid it off earlier.

Snowballing your debts means you grapple with the ‘worst’ debt first, throwing as much money as you can at it until it’s cleared while making minimum payments on the others. Then tackle the next most expensive one, and so on.

6. No need to save

Don’t even bother trying to save money while at the same time trying to get rid of the debt that you are in. You need to focus all of your extra money into paying everything off so that you will not build up anymore interest.

7. Little luxuries become big problems

This can apply to those daily coffees, vending machine snacks, magazines or a whole host of other little ‘treats’. We think that spending $3-$4 a day on lunch isn’t so bad – but when you add it up that is $18-$24 a week and $72-$96 a month! All that money could have gone straight to your credit card bill and paid it off a lot faster.

8. Don’t be afraid to find help

Millions of dollars worth of Government money go unclaimed each year because pensioners, parents and others in society don’t claim the benefits they’re entitled to. But it’s also worth remembering the benefits you have access to as an employee.

Subsidised healthcare, training schemes and pension contributions are all valuable added extras which many employers provide — so find out what you’re entitled to before you spend your own hard-earned cash.

9. Focus on cutting the cost not increasing the income

The last thing you need to do is ask yourself whether or not you really need that second or third job to help pay everything off. Many of us think that this will help - but what we don’t understand is that this allows the government to take even more money from us for tax purposes. Instead of getting another job trying reducing the amount of things that you pay out for. Try not eating out as much, lower your general food bill, lower the amount of your household bills, and try not to spend money on those luxury subscriptions. You will find that you will save a lot of money this way.