The first step
Before attempting the magnanimous task of trying to free yourself from debt you need to consider the underlying reasons that you are in debt to begin with. If you do not take the case to complete this simple exercise then you will either continue accumulating more debt or if you do by some miracle manage to free yourself from it it will only be a temporary solution because you do not understand the pitfalls that you repeatedly fall into.
Your debt
While there are many different types of debt, there are only two ways to end up in debt. The first of these is a debt undertaken in order to facilitate the purchase of a high value asset, such as a car or a house. This kind of debt is in a sense advantageous, as if the debtor falls into financial crisis, then the asset could be sold and the debt either cleared completely or greatly reduced. If the debt is cleared however and the asset retained then this could, in the case of a property, be a profitable venture. Nevertheless, a realistic approach must be undertaken when assessing whether this kind of debt is affordable or not otherwise the result will be devastating.
The second reason for debt and possibly a trap that most of us fall into is debt that is accumulated due to a deficit between income and expenditure. If this is the case, then you need to stop and think about your expenditure realistically. Even if you are taking out an extra 100 a month to cover bills then your situation needs to change. Be honest with yourself because that is the only way to resolve your situation. If it is a case of moving home, living less lavishly or even finding a second source of income then that is what needs to be done. You need to live within your means. Once you can successfully achieve this, then you can start working towards clearing your debts.
Assessing the extent of your debt
Start by writing down all of your expenses on a monthly basis; again be honest about how much you are spending, this is not a public record it is for your eyes only. This should include everything from transport, food, clothes, entertainment, bills, mortgage/rent and debt repayments. With the debt repayments, start by only including the minimum payments for every credit card or loan you have. Once you’ve done this compare your expenses with your monthly income. Can you now see where the problem areas are?
You now need to start trimming the fat, that’s right; you need put yourself on a budget. While it may seem scary or inconvenient it needs to be done. Now here is the important part, you will be looking at your debts and considering how large a portion it is taking of your income on a monthly basis. If you find that there is no way of repaying your debts and surviving on your income then you will need to consider your options including; contacting your credit providers to discuss your situation and possibly more agreeable terms of repayment, an IVA or even bankruptcy. This is only in cases where your debt repayment exceeds your income. However, if there are ways to reduce your personal expenditure to make payments then you should consider these options.
Creating a budget
When creating a budget you are essentially identifying your means and the standard of life that you can reasonable afford based on your income. For example, if you are earning 200 a week you will not be able to afford a 300 outfit every other week. Be realistic about what you can afford but don’t get carried away and believe that you could live on 10 worth of food shopping per week. If you make unrealistic goals then you won’t be able to achieve them and therefore won’t have the drive to stick to them. Try to start your plan from the month that you are writing in so that when the next month’s income comes in, you would have already started to become accustomed to your reduced expenditure. If needs be keep a diary of your daily expenses, as the saying goes “look after the pennies and the pounds will look after themselves”.
A new life without debt
One of the main reasons that people tend to keep themselves in debt or keep returning into debt is because they do not live within their means. Once you start living the life you can afford, then when you do happen to come across some cash you can put it towards your debt but there is no magic cure apart from accepting responsibility for the situation that you have placed yourself in. There are techniques to reduce the interest on repayments such as looking for new credit cards that provide 0% interest for a number of months or consolidating your debts, but if you don’t start putting money towards your debts then you will never clear them. In the end, you need to appreciate that the money spent was easy money and now is the time to pay back in hard work.