The first step in making significant progress towards lessening the amount that you owe to debtors is understanding that you do not want to amass any further debt.
So it is essential that you cut back on your spending, especially the non-essential luxury type of spending on all kinds of goods and services especially those that involve the use of your credit cards.
Get into the habit of only buying what you can pay for by cheque or cash, and take into consideration one (or a combination) of the following techniques for reducing your debts:
1. Be thorough and honest in detailing your income and expenditure: In maximizing the handling of your expenditure you will be clear on where you need to apportion your income.
You can give priority to your essential expenses and you can determine where to divert other money to pay off your debts. You also need to understand that unless you somehow make more than 12% interest on your savings you will “earn” more by paying off your debts (which may charge between 12% and 24% annual interest) rather than leaving the money in the bank.
Did you know that you can take 21 years and 11 months to pay a balance of £1750.00 on a credit card with 18% interest if you pay only the minimum monthly payment? Consequently, you would pay around £3647.00 in interest over that term.
If you pay only £25.00 extra each month, you are doing away with almost 19 years of that debt. This would mean a saving of £3059.00 due to this reduction in interest.
2. The main aim is to reduce the cost of being in debt; the principle aim is to find the payment amount that cancels out the interest. This will therefore reduce the length of time that you will be in debt and will quicken the process of repayments.
Make a list of each of your debts, including minimum payments and interest rates; make comparisons between interest rates and then transfer those balances to where you pay the highest interest.
Transfer debts with high interest to a facility with a lower interest charge: e.g. credit cards with promotional interest rates.
Work out if there are different methods of funding the repayment of your debts efficiently. An alternative could be your life insurance with cash values on the interest accrued at a rate of 6% or less.
3. It is worthwhile considering housing all of your debt in one location. That is, if you must combine in a single loan all your debts as collateral by delivering the equity in your home.
4. Make your creditors aware as soon as possible if you believe you will have problems making payments in time for extended periods. Explain the difficulties you’re experiencing and your determination to fulfil your obligations; they may well be willing to help, as it often suits them to do so.
5. Make use of the services of credit counsellors when you cannot personally handle your debt problems.
6. For some the only solution is to seek protection under the law through bankruptcy, it is not pleasant but it is something that some people have to face up to.
7. Be aware of the laws that protect your credit rights: it is important in terms of preventing abuse by creditors.