How To Cope With Bad Debt?

Finding yourself in bad debt can be a scary experience. When you have piles of debt, it becomes harder to meet your minimum payments and make any progress in paying down your credit cards or loans. Luckily, it is never too late to get out of debt and start saving for your future. Keep reading to learn how to deal with your debt.

Create a List Containing All Your Debt

For many households having some sort of debt is part of daily life. However, you cannot get out of debt without understanding how much you owe. Create a list of every credit card and loan in your name. The list should include the name of the creditor, the amount that you owe, the interest rate, and the minimum monthly payments.


Create an Income and Expenditure Sheet

The next step is to determine how much money you can use toward paying off debt each month. Use a spreadsheet or notebook to create a complete income and expenditure sheet.

Start with your income. List every source of income and the amount that you receive. Your expenditures include your bills, food, and personal expenses. List all money that goes out each month, including money spent on snacks or entertainment, except for your debt repayments.

After subtracting your total expenses from your total income, you know how much you have available for paying down your credit cards and loans.


Prioritize the Debt with the Highest Interest

After listing your income and totaling your expenses, you have a realistic view of how much you can spend each month. Determine the total amount that you can currently afford to devote to paying down your debt.

Pay at least the minimum amount on each credit card or loan to avoid additional penalties and fees. If you have extra money after paying the minimum amounts, use it to pay down the debt with the highest interest rate.


Start Cutting Back on Personal Expenses

To devote more money toward paying down debt, you may need to cut back on your expenses. Try to spend less on dining out, new clothes, and online services. You may also consider finding cheaper phone, Internet, or TV services to save a few extra dollars.

Every pound that you save is one more pound that you can use to pay off your debts. Keep this mind every time that you are tempted to spend money on something that you do not need.


Transfer or Consolidate Your Debt

Paying down your debts one at a time allows additional interest to accumulate. Many people can limit future interest by transferring or consolidating their debts.

For those with a decent credit history, consider looking into a debt consolidation loan. You may be able to obtain a loan with a much lower interest rate compared to your current debts. The new loan is used to pay off your existing loans and credit cards, resulting in a single monthly payment.

If you do not qualify for a debt consolidation loan, you may be able to get approved for a balance transfer credit card. Many credit card companies allow you to transfer balances from your old cards to the new card, combining your existing debts.


Negotiate Settlements with Creditors

If your debt has become completely unmanageable and consolidation is not an option, contact your creditors and begin negotiating settlements. Creditors want their money and are often willing to work with you to arrange a repayment plan that you can stick to.

Creditors are often more willing to negotiate with those who are experiencing hardships. For example, if you were recently laid off due to an illness or injury, your creditor may be more willing to establish a new payment agreement. Before you start making payments, make sure that you receive a written copy of the agreement. Without a written agreement, the creditor may change the terms.

For those who do not feel comfortable negotiating with creditors, there are debt consolidation companies. These companies negotiate with the creditors on your behalf and purchase your debts, rolling them into a single loan. However, debt consolidation services also include fees.

Stick to Your Budget and Always Pay Extra

After exploring your options for paying down debt, continue to stick to your budget and the payment plans that you have arranged. If you gradually start spending more money or skipping payments, you may find yourself right back where you started. Think about where and how you can save money when shopping

Any extra money that you have at the end of each month should be used to pay down one or more of your debts. Remember to start with the debts that have the highest interest rates.

As a final tip, you may want to consider downsizing your home. Selling your home or moving into a smaller flat may save hundreds of pounds each month that you can use toward paying down your debt.

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