Not Letting Your Debts Control You

debt control

Total personal debt in the UK is currently around the £1.4 trillion mark, that’s over £3,000 for every adult in the country and that figure doesn’t include mortgages. This debt is made up of personal loans, car loans, overdrafts and credit cards. With Christmas just behind us many people will have amassed even more debt over the festive season. It’s important to get in control of your debt so it doesn’t take over your life.

Stop Borrowing and Repay

It’s vital to deal with debt because if you don’t it just keeps on growing and can rapidly spiral out of control. The sooner you tackle your debts the easier they’ll be to deal with. The key to getting on top of the situation, strange though it may sound, is to start by reducing your spending. This has two effects; it stops you needing to borrow more to stand still and it maximises the amount you have available to make repayments. It’s pointless trying to tackle your debt if you haven’t got your spending under control first.

When it comes to the debt itself what’s important is not the overall size of the debt so much as its size in relation to your ability to pay it back. If you’re non-mortgage debts are bigger than a year’s income then they’re quite serious. It means you’d have to work for more than a year to pay them off even if you weren’t spending anything else. It helps if you understand where your debts came from too, if you just used your credit card, say and allowed the debt to build up then you’re at risk of getting into a debt spiral.

Concerned about Consolidation?

A popular way of managing your debts is to use another loan to pay them off and consolidate your debt. But a word of warning is needed here; you shouldn’t ever borrow more money in order to get out of debt. What you’re seeking to do is borrow the same amount elsewhere at a lower interest rate. Doing this means that more of your repayments goes to paying off the actual debt rather than simply being swallowed up by interest. Also it means you’ll have a single payment each month so it will be easier to see where your money is going.

If you have any savings you should always consider using them to pay off part or all of your debt. The reason for this is that the interest you get on your savings is always lower than the interest you pay on loans and credit cards so you’re making more effective use of the money. There are some exceptions to this, for example if the loan has a penalty for early repayment, or if you’re still in the interest free period on a new loan or credit card. Many people feel the need to keep money in a savings account for emergencies but it really is better to use it pay off your debt. You’ll be better off immediately and if an emergency does arise you can always use your credit card.

Need to Re-mortgage? Know the Consequences!

If you have a mortgage you might want to consider re-mortgaging your house in order to shift all or some of your other debt into the mortgage. The advantage of this is that mortgages always have a lower interest rate than other forms of borrowing. However, be aware that in doing this you’ll be at risk of losing your home if you can’t keep up the repayments.

Always try to get on top of debts as soon as possible. Let your lender know if you’re having problems as they may be able to help – by extending the loan period for example. It’s important never to miss payments if you can avoid it as this will affect your credit history and you may find it harder to borrow in future.

Debt advice is available from a variety of sources so you don’t have to struggle with things on your own. You can often consolidate your debts into a single loan so that you have one fixed monthly payment that makes it easier to manage your outgoings. Advisers can help you to come up with a debt management plan to help get things under control.

Author Bio

Sarah Fox is a freelance writer specialising in finance matters and debt advice and recommends visiting the Debt Free community on Google+ for tips and advice.

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2 Responses to Not Letting Your Debts Control You

  1. Mayra says:

    You can’t, the credit card cpanmoy determines which part of the debt gets paid off first, and guess what, they always choose the low interest portion.

  2. NorthenLoans says:

    Even though the value of your home has dropped and you have been harmed financially by corporate fraud the fhfa wants you to stay underwater, and does not want you to receive any justice. I guess the fhfa prefers to have us walk away or try short sales, that way they can then receive payment by way of constant tax payer bailouts, instead of forcing banks to pay for their mistakes and crimes.

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