Louise Tillotson writes for a number of websites on debt management, household budgets, savings and other personal finance topics.
If you have debts, then chances are you’ve got less than healthy spending habits. If you constantly find yourself thinking things like “If only I hadn’t bought that, then I could have this” or running short of cash a fortnight before payday, then you could do with taking action, kicking a few bad habits, and tackling some debts before they take over your life completely.
I won’t go into ways of cutting down your expenditure as there is tons of information out there on how to do that, and much of it is common sense anyway. Suffice it to say, if you have outstanding debts, then you need to put yourself in a position where you have enough disposable income to cut a sizeable chunk off of the balances.
Determining your financial situation
In order to do this, you need to know exactly what your financial situation is in. Getting copies of your credit report and score is the best way to understand your finances since trying to remember each debt, income and expenditure means you could easily forget about crucial ones. The goal is to find out how much you have coming in, how much is being paid out, and how much is left over.
Understand your debt obligations and make a plan
As well as knowing what debts you have, you also need to know how much the total amount owed is, the term left on each one, and what the interest rate on each one is. The idea is to pay off the most expensive debts first and get them out of the way as soon as you can. Debt that is taken out over a long period of time and has a high rate of interest is going to end up costing you more than a short-term loan with the same or a lower interest rate.
If you have a few small debts that you think you could pay off in one go, contact the creditors and ask about a settlement amount. They may be reluctant at first; some like to keep you paying interest for as long as possible; but don’t take no for an answer. Ask to speak to a supervisor or manager, and negotiate a lower amount with them.
What about your mortgage?
As for the rest of your debts, commit yourself to paying off a percentage of each one every time you get paid. Structure these payments depending on the interest, term and priority of the debt. For example, a mortgage will technically be the biggest debt you have, but clearing it isn’t really a high priority compared to one which may have some late payments. Any debts which you’re consistently up to date with payments on won’t be harming your credit score, so concentrate on those debts which you may have fallen behind on, and get these up to date.
This form of debt management is slow, but steady. Keeping up with payments is actually easier than trying to play catch up if you get behind. When you’ve had to do it once, you’ll do your utmost not to have to do it again!