People see debt differently. Some may see it as a right of passage when they reach adulthood. Others may see debt has a ‘no go’ area, where they would never tread. However, people end up in debt and it needs to be dealt with.
Yet, for whatever reason you are in debt, it ends up being irrelevant. Creditors tend not to care too much about why you have ended up in debt, or why you have missed payments. They are only interested in when they will receive their money back, as specified in any agreement that you have with them.
Believe it or not, debt is not a problem. It is a consequence of actions. It is best treated as such, especially when it comes to working out how bad your debt is.
So, how bad is your debt?
As stated, you cannot see debt as the issue. The amount that you may owe is not what needs to be considered. It is not about size, as they say. The real issue is in your ability to repay what is owed.
Of course, your ability to repay your debt is dependant on a number of different factors. This is where you can start to work out just how bad your debt is, or how difficult repaying that debt will be.
Your Non-Mortgage or Non-Rent Debts
If they are working out to be more than your year’s salary (after tax) then your debts are bad. If you stop and think about it, you would need to work for an entire year, and more, to repay your debts, regardless of how much you had to pay elsewhere.
However, this debt can be managed providing you know what you are spending from one month to the next. You may be repaying a debt of considerable size over a long period. For example, if you take out a loan for a car, that is repayable within six or seven years, then this money can be repaid a little more easily.
Most people like to work through a checklist, especially when it comes to working through debt issues.
A Typical Debt Issue Checklist
- Sort Out Your Spending
The first thing you must do when working through a debt issue checklist is to budget your income and expenditure. Once you have done this, you can then work on reducing your outgoings.
Reducing your outgoings may seem easy to some, but very difficult to others. It all depends on your own financial position. If you are already struggling with reducing your outgoings, as debt payments make up most of your expenditure, it could be time to consider consolidation loans. You may have a sizeable amount of disposable cash, but are spending them on the wrong things. If this is the case, reducing your outgoings should be a lot easier.
- Check For Help
There are a number of people that could offer you assistance, whether you are in debt or not. Your first point of call should be to check what benefits you could be entitled to from the government.
Benefit entitlement is just one area of help on offer. There are plenty of more organisations that can help you in other areas. Consolidation loan companies can give you some great advice, especially if you are struggling to repay your debts. Charities and Advice Centres can also help you. They are there to offer you unbiased advice on how you can manage your debt. They can also give you additional advice on where to look for help, if you are struggling to repay your debts.
- Struggling To Pay the Mortgage
If you are a homeowner you could be in luck, as there are a few schemes out there that can help you with your monthly mortgage repayments. Some involve actually buying a share in your home, which you can purchase back off them when your financial situation improves.
- Claim What Is Yours
Over the last decade you may have been involved in a number of schemes that are now deemed to be illegal. Legacy insurance products or ‘dodgy’ financial operations may have left you out of pocket. The advice here is to do some research into the practices and products where consumers are being refunded.
- Check Your Credit History
There are a number of credit agencies that may hold information on you and the credit that you have taken out. A poor credit file will stop you applying for credit in the future. So rather than successfully applying for a loan, you are actually declined.
The best thing to do is to check your credit files with the relevant credit agencies. You can request your reports to be sent to you or you can view them online. You may notice some errors in your credit files which could lead to credit rejections, rather than successful applications.
- Can You Move The Debt?
The next logical step in the checklist, once you have checked your credit history, is to consider moving the debt to a lender with better rates or credit over a longer term. If you use this correctly, you could save a fortune in interest payments.
Consolidation loans are a great place to start. The idea is that you use this to consolidate your debt into a more manageable arrangement. In most cases you will pay less interest, and you may be able to specify a longer term to suit your existing budget.
You may also choose to look into credit cards, depending on how large your debt is. Most credit cards offer zero percent for balance transfers for new customers, for a limited time. Again, it may not be for you, and the debt you carry, but it is certainly worth investigating.
- Have You Got Savings?
If you have any saving anywhere, you should be using this money to help you clear your debt. It makes perfect financial sense. You may have noticed that the interest rate on your debt is much higher than your interest rate on your savings account. If you use your savings to help clear the debt, the amount you owe becomes less, as does the interest you pay. It is just good financial sense.