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How to Get Rid of Multiple Bad Debts Situation

If you have been spending nights awake anxious about your finances and brainstorming what you should do to get rid of debt, you have fallen into bad debt.

Despite trying your best to borrow money only when you need it and not to borrow more than your affordability, you find yourself in a debt trap.

Perhaps a little more attention is required, but you fail to take a holistic view of your finances when borrowing money.

A loan is expensive even if you use it to meet an unforeseen expense and manage to pay it back on time. The reason being you are paying interest on top of the principal.

If you had stashed away enough money, you would have utilized the money to be paid as interest somewhere else.

Being in debt is disconcerting, but the good news is that you can get out of it. However, it will take some time. Diligence and patience are both required to get money in your control.

Ways to tackle bad debt

Here are some tips to ease your worries and help you put your finances on the right path:

  • Know what you owe

The first step in dealing with debt is to know how much exactly you owe and to whom you owe it. There could be a variety of loans like mortgages, credit cards, car loans, and loans for bad credit with no guarantor and no fees.

Credit cards are normally taken from a bank, so grab your bank statement and see how much money is debited each month. The same statement will throw light on your payments toward lenders.

Make a note of how much money you borrowed, how much money is outstanding, and how much you are due to be making payments in the coming months. At the same time, you need to add to any borrowing from friends and family, any outstanding electricity bills, gas bills, water bills, etc. If you are arrears on rent, make sure you add them to your debt and know the company the outstanding payment is to be made.

This can be scary, undoubtedly, but knowing the true condition of your debt is important to make the right strategy that works in your favour.

  • Build a budget

Once you know how much exactly you owe and who you owe to, the next step is to frame a budget so you can make a repayment plan. Not all loans work the same way.

There are some loans that you cannot get rid of right away, like mortgages and car loans, but in order not to cause them to hit your finances, you will have to make a repayment plan for them too.

Other loans like credit card debt, bad credit loans, outstanding rent, and utility bills do not require to be paid in instalments, so you can easily get rid of them. However, you will have to look at your budget to know the scope it has to make payments toward them.

Make a list of all expenses. Do not forget to include monthly mortgage instalments and car loans. Because these loans are secured, you can lose your house or car if you do not keep up with payments.

After including these payments, you check how much money you have left to pay down small debts. Now is the time to make a strategy.

  • Since you have already taken on too much debt, choose a minimum repayment plan. This ensures you settle your debt gradually.
  • Try to make a larger payment toward high interest debt, as accrued interest on the unpaid amount will pile up the debt.
  • If this does not work in your favour, you can take out a debt consolidation loan with no guarantor.
  • You may have to whittle down your monthly spending. Until debt settlement, say no to discretionary expenses. You will probably have to downsize your lifestyle too.

What are debt consolidation loans?

A debt consolidation loan means withdrawing a personal loan worth the total value of all outstanding debts and using it to pay off all of your debts once and for all. Then, you will pay down the personal loan in fixed instalments.

You will have to carefully weigh up which strategy works better for you to get rid of debt.

  • Contact lenders

If you think that you can manage to make minimum payments toward each debt, you cannot do it on your own. You will have to tell them of your genuine financial situation, and then, after perusing your current financial situation, they will determine the monthly payment size.

The payments of a mortgage and car loan remain intact regardless of the strategy you choose. However, it is likely that you find it difficult to keep up with payments. Note that default can attract hefty penalties, so it is recommended you inform your lender before the payment is due.

Having notified them beforehand will prove that you are sensible with your borrowing and well understand the consequences of making a default. They will likely help you when you are in a tight spot. They may consider payment holidays or switch you to an interest-only loan for a while. Some lenders may consider revising the repayment plan.

  • Get help

If you are unable to decide what works for you, you should consider taking advice from a financial consultant. They will look over your financial situation and outstanding debt to come up with a strategy that works for you.

National Debtline and The Debt Advice Foundation give advice about loans, credit cards, and debt. The latter gives free advice. If you need some time to assess how to deal with debts, you can avail of a Debt Respite Scheme, which keeps lenders from adding interest to your debt for 60 days.

Take message home

Multiple outstanding debts can be like a nightmare, but you can get out of them by making the right strategy. Look over your bank statement to see how much you earn and how much you can pay toward the debt every month. This is a gradual process, but if you stick to the plan, you will certainly get rid of it.

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