10 Steps To Taking Control Of Your Debts

Few of us go through life without incurring debt. Borrowing money is a convenient way to help us through life. However, when debt starts building up, it can become a major problem. Ignoring the issue is going to make matters worse, so it’s important to manage debt. The following steps can help you reduce your debt.

Please note that these steps are aimed at people whose debt may be a problem, but who have not reached crisis point. The steps can help everybody who has debt, but those who are in very serious debt trouble need to take additional measures. Her are 10 steps to taking control of your debts that you cant be without.

Step 1: Stop increasing your debt

While you cannot stop interest being added, you can stop adding more to your debt by using credit cards that already have an outstanding balance. Each month, try to ensure you pay the minimum payment on each card you have to avoid penalties and excess interest. Try to stop using credit cards altogether (see Step 7 below). 

Step 2: Analyze your use of money

You need to have an in-depth understanding of how you use money if you are to start making inroads into your debt. The only way to get this understanding is to analyze every cent you pay out. Doing this is not as difficult as it may sound. All you need to do is keep a record of all expenditure. 

Carry a small notebook, or use your phone or tablet, to record every financial transaction you make, no matter how small. Don’t forget to include card transactions and automatic debits from your bank account. Once a week, go over your transactions and highlight any that you could have avoided. For any unavoidable expenditure, see if there are ways you can reduce the amount spent. 

Step 3: Analyze your debts

Make a list of all your debts, excluding your mortgage, noting the amount owed and the interest rate you are paying. Use a spreadsheet to put them in order of how much they are costing you, the most expensive being first. (The most expensive debt is not necessarily the biggest one. For example, a $15,000 debt at 18% is costing you less than a $12,000 debt at 25%.) Concentrate on using spare resources to make payments against the most expensive debt. Keep your spreadsheet updated when you make payments. As balances change, the order of your most expensive debts may also change.

Step 4: Scrutinize monthly accounts

When you get bank or credit card statements, don’t just look at the totals and then file them away. Go through every transaction to ensure it has been recorded correctly. Banks, creditors and other financial institutions do make mistakes, even if it’s rare. Mistakes by other companies that take payments automatically out of your account are more common. Check that your service providers have taken the correct payment, and make sure each payment has been take only once. 

Step 5: Get an expert to analyze your interest payments

Interest calculations can be complex, and most of us do not understand how interest charges are arrived at. There are professional services available that can check your interest payments. Many of these provide their service free of charge. They make their money by deducting a percentage of any refund they help you obtain. It costs you nothing if all is in order, and you stand to gain if they uncover any overcharges that can be refunded.

Step 6: Try to swap debts to reduce interest payments

Credit card debt attracts a very high interest rate compared to certain other forms of debt. If you can, get a loan from a credit union or bank to pay off some or all of your credit card debts, thereby reducing your interest payments. If you cannot get a loan, look for options to transfer debts from higher interest cards to lower interest ones. 

Step 7: Start using cash instead of cards

While cards are much handier than cash, they have a strange psychological effect of making you less aware of what you are spending. Using cash to pay for things gives you a better sense of how you are using your resources. Each week, month or fortnight, take a chunk of your income out in cash (make sure you keep it safe). Take cash from your chunk when you need to buy goods. Watching your little pile get smaller as you use it up makes you so much more aware of what your are doing with your money. Another benefit of using cash this way is that it stops you making impulse purchases.

Step 8: Look for better deals from service providers

It’s surprising how many people stick with the same bank, utility company, phone company etc. Loyalty costs you money. Examine the costs of each of your service providers, and compare their charges with alternatives. You may find that you can make substantial savings by taking your business elsewhere. Do this check at least once a year. 

Step 9: Make lifestyle changes

It can be hard to make changes to your lifestyle, but you will need to do so if you are to reduce your debt. After all, it’s quite likely that it’s your current lifestyle that has got you into debt into the first place. For example, you and your partner may like to dine out just once a week. This can hardly be called extravagant, but it comes at a cost. $100 dollars spent on your weekly treat amounts to $5,200 over a year. 

Finding ways to reduce or eliminate this type of expense results in big savings. There are numerous online articles that can show you how to fairly easily reduce your expenditure on everything including essentials. Check these options and put them into practice. 

Perhaps downsizing your home or vehicles is an option. If you are renting your home, consider moving to an area where rental prices are lower. What about using public transport instead of your own car? If that’s not possible, you could join or start a car pool.

Step 10: Increase the amount of money you bring in

Look for opportunities to earn more money. If you are employed, ask for extra work if it’s available. You could also earn extra money by gaining a promotion at work. Check out opportunities for promotion. Are you able to take on a second, part-time job? Even a few hours a week can make a difference. 

Do you have a skill that can earn you some money? Maybe you could teach people to play an instrument, help local kids with schoolwork, teach a foreign language, or provide some other service. 

Assess your assets. You may have assets of some value that you can sell. If you are a homeowner, you could consider releasing equity, although doing so is really deferring debt rather than reducing it. Renegotiating your mortgage term upwards can reduce monthly payments, but that option is also deferring debt. 

Following the steps above will help you reduce expenditure and/or increase income. It is vital that you use the extra cash saved or earned to reduce your debts, rather than spending it. It may take a long time to clear all your debts, but watching your debt balances shrinking will be a positive experience.