Debt is something many of us live with and manage reasonably well, but unfortunately, some of us do not do this effectively and find it very difficult to get out of debt once we are in it.
The problems are simply down to two parties:
* You, as the borrower and your need to borrow money;
* The lender: a bank, building society or loan company and their need to make money.
Often, these lenders extort large amounts of interest from those who can least afford to repay it and therefore making it almost impossible to get out of debt - unless you understand the power of compound interest that the banks use to leverage their hold over you. This age-old trick by the financial industry easily becomes a spiral of debt if not dealt with early on. Before you know it, those bank charges from last month (which you forgot about) have added up to a large sum and been taken out of your account. In turn, this takes you through your overdraft limit, racking up another charge on top of the debts you already have and the overdraft charges, and so on.
Now it could be that you can't afford to pay your debts in full. Get in touch with your loan or credit card providers directly (you don't need a debt management company to do this for you and ultimately charge you a fee for the privilege if you use their services) and negotiate a deal for yourself to repay them what you can afford - you will find most are happy to do this if it's possible and it suits them too, so don't bury your head in the sand. Seek help first from the people who lent you the money in the first place!
However, in this hypothetical situation, it has gone from bad to worse and this is a daily occurrence in the world of personal finance for many people. Many people feel embarrassed about their personal finances when they go wrong and shy away from the problems that are mounting in front of their very eyes. But you don't have to do it alone. If this is you, you need to get out of debt right away - and I have a strategy below which will help you to do that!
Now it's time to take control of your finances and fight back! Here's a simple strategy detailing how to get out of debt:
1. If possible, transfer all your credit card debts or high-interest loans to a credit card balance transfer (ie. onto an interest-free or reduced rate credit card for a fixed period of time) to allow you to reduce the amount of interest you will repay over the coming months;
2. If you can't get a balance transfer (if your credit record is poor, for example), then rather than saving money up (although do try to keep some cash aside for emergencies), repay all your loans and credit cards FIRST before saving cash. Ideally, it should be the loan balance on the highest interest rate that you incur on any outstanding balances you have
3. DO NOT USE YOUR NEW OR EXISTING CREDIT CARDS! Your balance transfer credit card may begin to charge you high levels of interest on your spending - therefore defeating you from your objective;
4. By paying back your loans earlier and in higher amounts, you will save more money in lower amounts of interest to be repaid than the amount of interest you would make in saving any spare cash in a savings account;
5. Repay the minimum payments on your remaining credit card balances you owe to keep them happy and off your back (and not damage your credit record too, of course);
6. Once you have paid off the balance of your highest interest rate loan or credit card, then use that spare money to pay back the next highest interest rate ON TOP of the minimum payments you were making before this extra money became available;
7. Whatever you do, DO NOT start to think you have more money at this stage and begin to spend it - you have simply started the process of getting out of debt!
8. Keep following this strategy until your ALL your immediate credit card debts and short-term loans are paid off and your earnings are finally your own again (car loans and similar types of credit are often manageable by this stage for most people, so get to this stage and you are almost free of debt)!
9. Once this is achieved, start saving some cash for emergencies and, if possible;
10. Start to make some additional payments to your mortgage (as the interest rate on your property is likely to be much higher than the interest you could earn on your savings in total), or;
11. If you are already paying something extra off your mortgage balance each month, you should save some money in cash ISAs or alternative investments that you are comfortable with.
If you follow this suggested strategy PROPERLY, you can and will get out of debt like I did. It can be painful at times and it will be very tempting to start spending again (even on the forbidden credit card), but don't do it!
After you have cleared your first big debt, stick to the get out of debt plan detailed above and use that spare money to power down the debts you have elsewhere. This is using the bank's trick of compound interest against them now - you have turned the situation around and in your favour and from here you should be able to get out of debt!
By using the money you have spare to pay more debts, you are reducing the interest you owe overall with each additional payment and therefore SAVING yourself more cash than you could save up and gain interest on alone at today's relatively low interest rates.
Article Source: http://EzineArticles.com/?expert=Clare_G
The problems are simply down to two parties:
* You, as the borrower and your need to borrow money;
* The lender: a bank, building society or loan company and their need to make money.
Often, these lenders extort large amounts of interest from those who can least afford to repay it and therefore making it almost impossible to get out of debt - unless you understand the power of compound interest that the banks use to leverage their hold over you. This age-old trick by the financial industry easily becomes a spiral of debt if not dealt with early on. Before you know it, those bank charges from last month (which you forgot about) have added up to a large sum and been taken out of your account. In turn, this takes you through your overdraft limit, racking up another charge on top of the debts you already have and the overdraft charges, and so on.
Now it could be that you can't afford to pay your debts in full. Get in touch with your loan or credit card providers directly (you don't need a debt management company to do this for you and ultimately charge you a fee for the privilege if you use their services) and negotiate a deal for yourself to repay them what you can afford - you will find most are happy to do this if it's possible and it suits them too, so don't bury your head in the sand. Seek help first from the people who lent you the money in the first place!
However, in this hypothetical situation, it has gone from bad to worse and this is a daily occurrence in the world of personal finance for many people. Many people feel embarrassed about their personal finances when they go wrong and shy away from the problems that are mounting in front of their very eyes. But you don't have to do it alone. If this is you, you need to get out of debt right away - and I have a strategy below which will help you to do that!
Now it's time to take control of your finances and fight back! Here's a simple strategy detailing how to get out of debt:
1. If possible, transfer all your credit card debts or high-interest loans to a credit card balance transfer (ie. onto an interest-free or reduced rate credit card for a fixed period of time) to allow you to reduce the amount of interest you will repay over the coming months;
2. If you can't get a balance transfer (if your credit record is poor, for example), then rather than saving money up (although do try to keep some cash aside for emergencies), repay all your loans and credit cards FIRST before saving cash. Ideally, it should be the loan balance on the highest interest rate that you incur on any outstanding balances you have
3. DO NOT USE YOUR NEW OR EXISTING CREDIT CARDS! Your balance transfer credit card may begin to charge you high levels of interest on your spending - therefore defeating you from your objective;
4. By paying back your loans earlier and in higher amounts, you will save more money in lower amounts of interest to be repaid than the amount of interest you would make in saving any spare cash in a savings account;
5. Repay the minimum payments on your remaining credit card balances you owe to keep them happy and off your back (and not damage your credit record too, of course);
6. Once you have paid off the balance of your highest interest rate loan or credit card, then use that spare money to pay back the next highest interest rate ON TOP of the minimum payments you were making before this extra money became available;
7. Whatever you do, DO NOT start to think you have more money at this stage and begin to spend it - you have simply started the process of getting out of debt!
8. Keep following this strategy until your ALL your immediate credit card debts and short-term loans are paid off and your earnings are finally your own again (car loans and similar types of credit are often manageable by this stage for most people, so get to this stage and you are almost free of debt)!
9. Once this is achieved, start saving some cash for emergencies and, if possible;
10. Start to make some additional payments to your mortgage (as the interest rate on your property is likely to be much higher than the interest you could earn on your savings in total), or;
11. If you are already paying something extra off your mortgage balance each month, you should save some money in cash ISAs or alternative investments that you are comfortable with.
If you follow this suggested strategy PROPERLY, you can and will get out of debt like I did. It can be painful at times and it will be very tempting to start spending again (even on the forbidden credit card), but don't do it!
After you have cleared your first big debt, stick to the get out of debt plan detailed above and use that spare money to power down the debts you have elsewhere. This is using the bank's trick of compound interest against them now - you have turned the situation around and in your favour and from here you should be able to get out of debt!
By using the money you have spare to pay more debts, you are reducing the interest you owe overall with each additional payment and therefore SAVING yourself more cash than you could save up and gain interest on alone at today's relatively low interest rates.
Article Source: http://EzineArticles.com/?expert=Clare_G
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