How to Get out of Debt

If you are in debt it can feel like you have a big cloud hanging over you. Some people can brush it aside and not worry, but there are a lot of people who find that the problem of debt can really get hold of them and make them worry and panic. This is understandable, but the problem with getting emotional is that it can stop you thinking clearly. Dealing with debt can be done in a methodical way and you will need to stay calm and think logically in order to sort things through.

To start with you need to gather all of your paperwork and note down exactly how much you owe and to whom. You may just have one source of debt, but it is more common for people to have a selection of places that they owe money to. You need to note it all down. This can be very scary as it is easy to borrow lots of money which could leave you owing many times more than you earn in a year. However, once you have taken this first step, you will be able to start to come up with a plan for getting rid of the debt.

There are two main ways to tackle the debt. Some people prefer to pay off the small debts first so that they can reduce the number of places they owe money to. They start with the smallest and then work through them, eliminating a debt at a time until they are gone. This can be really satisfying as you can see the debts disappearing as you work through them and it will not take long for the smaller ones to disappear. This can be so rewarding that you are encouraged to keep working at reducing your debt. The other way is to calculate which debt is the most expensive and pay that one off first. This is the best way with regards to saving the most money. However, if the most expensive debt is really big it could take a long time to pay it off and this could be rather demotivating and make you feel that it will take forever to get all of the debts paid. You will know which is likely to be the most appealing way to do it for you.

Of course, you need to get together enough money to be able to pay off the debts. This will be easier for some people than others. If you have savings, then it is a good idea to use them to pay off some debt. Although it can feel good to have savings and money to fall back on, if you have debt it is not wise. You see, a debt will be costing you money and although savings accounts earn some interest, it will not be as much as you will be paying out on your debt, in most cases. This means that it is better financially, to use those savings to pay off debt.

It can be worth seeing whether you can move the debt to a cheaper lender. This is not possible with all types, but you may be able to have a balance transfer on a credit card, take out a cheaper personal loan to pay one off or things like this. It is good to check.

You will also need to find other ways to pay off your debts. It is good to look at two angles, see whether there are ways that you can earn more money as well as ways that you can spend less. Both of these will mean that you will have more money that you can spend on repaying your debt. You may be able to work more hours or do extra work in order to earn more. You could sell things that you own, rent out rooms, your driveway or try other things to get more money. Spending less may sound hard but if you cut back on luxuries, switch suppliers and brands to cheaper ones and things like this. By carefully analysing everything you buy, you should be able to work out where the most money is spent and whether you can cut down.

You will also need to check how you repay the debt. Some loans may have a penalty for paying them back early, but you may still be able to save money by doing this if the penalty is small compared with the accumulated interest cost over the remaining term of the loan. These will vary a lot, with some having no penalty at all and others asking for a few months interest payments or perhaps more. You should be able to phone customer services and find out.
There are a lot of things to think about, but once you get started, you should soon find that you will be in a position to be able to pay some money off your debts and work towards being debt free.

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