Getting out of debt is possible and necessary for many, but it isn’t always so simple. The good news is that a debt management program is the way to go. The bad news is that the majority of people don’t have these programs. What you don’t have can change. If you don’t have access to a debt management program, here’s how to do it.
Get to Know Your Debts
Your debts are unique and each one can be difficult. This is important. How you handle them will determine how much it all turns out to cost. Also, as with anything, you don’t really know until you work it out! Get good, detailed information on your debts and how they stack up.
Some common causes of indebtedness:
1) Credit card balances – these can be complicated as they are not always just the balance. Many times, they are a mix of late fees, interest rate changes, etc.
2) Licensed moneylender debts – these create a vicious cycle that debtors never able to fully pay off if they only pay the minimum each month. To make things worse, the moneylenders would normally entice the debtors to take up new loans and if this resources run dry, they will introduce you to their “affiliate” companies.
3) Medical fees (self or family members) – sadly, this is quite an unavoidable thing if we are in the sandwich class. Family commitments and responsibilities clinch on and burden you if you did not start preparing for this at younger age or when you should have.
4) Home mortgage – this will be a long road to take and only at the last resort that you would want to sell off to settle your rising debts.
Being Consistent is Key to Managing Debts
Being consistent is key in paying off debt. You need to not take on too much at one time and save as much each month as possible. If you are starting with a small amount, or a large one, go ahead and try to save as much as you can. It makes sense, especially if you can’t save any more, to try to pay the maximum balance at the time. However, if you’re going into debt, and you need to pay most likely within three to five years, you know you’ve got to stick to a plan.
You may find that once you’ve saved everything, you begin to take on more than you can afford. At that point, you need to stop and look at your finances again. If you find you have to pay for something in order to make the goal, look to see whether you can find more to pay for. As long as you don’t make the same financial mistake twice, you will have a way to begin to eliminate the debt and you’ll be able to take care of your financial issues the first time around.
It’s important to know when you can stop trying to pay off debt. It’s not the same as being in debt and living a good life at the same time. Once you reach the point of no getting around it, you may need to make an amends, take advice from a qualified financial professional, or seek a restructuring of credit.
Make plans for what you want to do with a certain part of your paycheck. If you are planning to save money for something such as vacation, then set a budget where you’re willing to put in as much as you need to, and save only that amount. Then after saving this money for a while, you’re going to be free to use that other money for anything.
Ideas to Manage Bad Debts
In case you are in the process of losing your job, you will need to consider the situation with the credit score while it is in high risk as you might not be able to pay the bills. It is good to know that it is quite possible to gain a good credit score while at the same time paying the bills.
You can check the status of your credit score by visiting the local credit bureau (eg. in Singapore, there is Credit Bureau Singapore) that offers you detailed credit reports.
There are numerous articles, books, and blogs on the subject of being debt-free in the past few years. “How do you achieve a life of financial freedom?” A blog by Jaxon Wells at debt-free-for-life discusses several ideas, such as starting a daycare center, living on the road, or working as a nanny. There’s merit to taking out some loans and saving as much as you can to be debt-free. That will take courage, but it can be very beneficial if you are disciplined enough to stick to your program.
In some situation, insurance may be an option. There are many cases, after all, where having debt is not your problem. The problem is what to do with it. With the help of an insurance policy that is tailored to the person with bad debt, you can pay down your debt. There are so many things that you need to consider before you decide on one. For instance, some policy providers require people to take part in a debt management program. It will give you ideas about what they like to do that is good for you. As things come up that you need to make a payment, they will monitor their policy.
Other people will not keep you informed about what you need to do on your debt management plan. Some only have information about how you can pay that month or a month later. You have to be careful when you get information from that. Your adviser must provide all information regarding your debt repayment plan in one place.
In Singapore, you may also consider approaching Credit Counselling Singapore, they are a leading charity agency that fosters financial resilience and a trusted debt advisor for all matters related to debts.
Start Somewhere to Achieve Your Debt Free Goal
Bad debt is the number one financial stressor that most of us face. For the vast majority of people, it is often the primary cause of a big issue that prevents us from achieving our financial goals. It often goes unnoticed by most of us until one of our important goals is left hanging in the balance.
The best way to deal with bad debt is to have a realistic view of what your true financial situation really is and how to deal with it. Weighing your options and figuring out the best choice might be overwhelming at first, but it will make the process of debt-free living more efficient.
There are several general strategies to helping you do this, and they all boil down to common sense.