Consumer
debt is becoming one of the scourges of modern life with average debts per
household soaring. I’m not talking about loans and debt used to buy assets,
such as houses or commercial buildings, but credit used to buy depreciating
consumer goods like cars, TV’s and furniture.
In
an earlier podcast
episode, I talked about the rent-to-own stores which prey on the poorer
members of society selling them consumer items at ridiculous prices and then
charging extortionate interest rates on top!
Whatever
the reasons for getting into serious debt, if you want to live without worry
and fear it is vitally important to get out of debt fast and stay debt free
forever.
Here
are my 12 steps to get out of debt fast and stay out of debt for good
- Prioritise debts in order of importance and cost of
servicing the debt. Obvious priorities are things like keeping a roof over
your head and maintaining power supplies, rather than paying those who are
shouting the loudest. Look at the cost of your loans or credit cards and clear
the debts with the highest interest rate or repayment. Clearing the high
cost debts first will give you breathing space to pay off other debts
faster by saving money on interest.
- Slash non-essential outgoings. Go through all your
standing orders and direct debits and ruthlessly cut out everything you
don’t need, especially things like Sky TV or that membership of the gym
you only visit once a month. Exercise at home and find a way to walk more
often.
- Make a plan to start paying off debts and stick to it.
Most people don’t realise that if you just pay the minimum amount required
on a credit card it will take several years before the debt is paid off. Start
clearing expensive debts first so that you can reduce the rising tide of compound
interest drowning you by by increasing your balance faster than you can
clear it. List all debts and monthly repayments on a spreadsheet and plan
your route to financial freedom. This one step of making a list of your
debts will make a huge difference.
- Get a balance transfer card. Whilst this is a
short-term measure, transferring credit card balances from high interest
charging companies to 0% cards will give you breathing space. Watch out
for the balance transfer fees which can be a high as 3%. Sometimes it can
be cheaper in the long run to pay a small interest rates with no balance
transfer fees.
- Earn extra cash. One of the most obvious ways of
reducing your debts is to increase your income. This can be achieved in a
number of ways including starting part-time business, working extra hours,
qualifying for a pay rise or getting a higher paid job.
- Check if you are entitled to any benefits or tax
credits. This especially applies to single parents and people in low paid
work. It’s more benefit or tax break could transform your finances
overnight. To find out more check on the government website or see
citizens advice if you live in the UK.
- Never ignore a bill, demand and especially a debt
collector or court letter. Burying your head in the sand will not make the
problem go away and ignoring any of the above will make matters worse and
cost you more in the long run with interest and penalties. Ignoring bills
and letters will ultimately lead to County Court Judgements and debt
defaults which will stay on your record and credit file for six years and
effectively ruining your credit rating.
- Speak to your creditors if you are having difficulties.
- Ask for help. This could involve your Citizens Advice
office, an independent debt counsellor or even a relative. We all need a
little help from time to time and being in debt can be lonely and
depressing.
- Stay out of consumer debt for good. Never borrow to buy
expensive consumer items which depreciate in value and avoid rip-off deals
like rent to own products like the plague. The old adage of “if you can’t
afford it do without it” should be drummed into this modern ‘I want it
now’ age! We have become too accustomed to the ‘buy now pay later’ culture
of easy credit, which should be called easy debt, and keeping up with the
joneses, which I mention in my forthcoming book ‘Yes, Money Can Buy You
Happiness’.
- Never use expensive payday lenders, unless you have no
other choice, and especially unauthorised doorstep lenders will charge you
a small fortune interest.
- Start building your credit rating by making repayments
on time and clearing credit cards faster. The higher your credit rating,
the more access you will have to cheaper finance and the less you will be
dependent on expensive credit.
Finally, measure and monitor to keep the momentum and maintain and debt free lifestyle.
See also:
How to Monetise Your Knowledge and Skills and Turn Passion into Profits
