There is no single best approach to getting out of debt. Everyones circumstances are different and each borrower’s debt strategy needs to take all kinds of factors into account. For example they need to consider their level of debt, kind of debt (there is a world of difference between credit card debt and mortgage debt for example), income and financial commitments.
Aside from the actual numbers involved, there’s the psychology of getting out of debt. Different people have different attitudes about money and understanding how you handle your finances is a vital part of clearing your debts. Here, we’ve included just three of the issues that can stop people getting out of debt – along with a few possible solutions.
Example 1: Credit Card Temptation
Some people find it hard to resist easy-access credit (like credit and store cards), and this can make it very difficult to get out of debt with a debt consolidation loan – paying off your card debts with a loan can be dangerous if you keep on running up new debts on your cards.
If you don’t think you can resist the temptation to use your cards, then canceling them is an important part of making debt consolidation work for you.
Example 2: Spending Habits
A lot of people seem to have enough in theory, but never in practice. They may find themselves borrowing (through credit cards, overdrafts, etc.) every month just to make it to the next payday – even though they know their salary should be enough to cover their costs.
Effective money management starts with a budget, so write down exactly what you receive and what you spend every month. You might already know what you spend on major bills like rent / mortgage, utility bills and petrol, but you may be surprised by the cost of your discretionary spending (basically, things you don’t really need). This is why it’s so important to write down everything you spend, so you can spot areas where you can cut back.
Example 3: Dislike Of Paperwork
Bills, letters, statements. Some people find paperwork boring, depressing and / or intimidating, especially when it tends to be bad news. However, staying on top of your finances is absolutely essential – how can you tackle your debts effectively if you don’t know what you owe?