How To Get Out Of Debt: Part 2

In part one of this article we looked at the first steps to take when escaping the debt trap – prioritising your debts and preparing a budget. In this section, we’ll look at the next steps you need to take to become debt free.

In part one we advised on how to make a budget to calculate your incomings, outgoings and disposable income. Ideally, your disposable income will be enough to keep up with repayments on all your debts. Unfortunately, this is not always the case.

If you do not have enough money to pay all your debts you will have to find a solution. A popular, but risky, option is to consolidate your debts into one loan. If you own a home or some other valuable asset you could get a secured loan to pay off your debts. Because such loans have lower interest rates, this might be a more affordable option for you.

However, there are some significant drawbacks to this solution. Remember that if you default on the repayments of the loan, your home could be at risk. Also, although interest rates may be low, the term of the loan will most likely be lengthy so it could cost you more in the long run. Finally, cheap credit doesn’t always stay cheap – be prepared for interest rate rises.

If this is not an option for you, another option is to contact your creditors directly to negotiate a manageable repayment plan. Most lenders will be flexible if you offer to repay a reasonable amount each month, and some may even waive interest costs.

It is advisable to contact creditors by letter first, explaining the reasons behind your financial difficulties and how much you can afford to repay. Once you have reached an agreement that suits all parties all you need to do is keep up with repayments.

Keeping up with repayments

It takes willpower and budgeting to keep up with repayments but it is an essential part of getting out of debt. Again, good planning will help you with this, and with time things should get easier as your financial situation improves. Here are some tips:

• Find a way to make the payments easily. Do it from your own home over the internet or at a nearby bank or post office.
• Use separate bank accounts for debt repayments, living costs etc. As soon as you get paid each month, deposit the appropriate amount in each account.
• Find a free bill paying method – some charge.
• Contact your creditors immediately if you get into further financial trouble or miss a repayment.

Escaping the debt trap is no easy task and takes a lot of planning and determination. But it can be done. If you feel that you cannot go it alone, then you should enlist the services of a debt management company who can give help and advice, and draw up a debt management plan. Whichever you choose, we hope the advice given in these articles is of benefit to you.

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