How To Dig Your Way Out Of Deep Debt

Do your debts keep piling up? Does it feel as if there’s no way out? Digging yourself out of deep debt isn’t easy – but it is possible. It requires making a few changes to your lifestyle and having the determination to dig your way out. Here are just a few steps that you can take to put an end to your debt.

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[ctt template=”4″ link=”C1V18″ via=”yes” ]Do your debts keep piling up? Does it feel as if there’s no way out? Digging yourself out of deep debt isn’t easy – but it is possible.[/ctt]

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Make a rule to stop borrowing

First of all, you need to make a vow to stop borrowing money. Any money you borrow will be adding to your debts, which will undo your attempts to reduce your debt. Unless it’s an emergency and you absolutely no other option, avoid taking out loans. You may even want to cancel your credit card to discourage you flashing the plastic.  

What about refinancing and consolidation?

There are exceptions to the ‘no borrowing’ rule. This includes any kind of loan that helps to reduce your current debt by lowering interest rates.

Refinancing is a common way of doing this. This involves paying off a high interest loan with a low interest loan. This can allow you to pay less in the long run by reducing your overall interest.

There’s also the option of consolidation loans. If your debts include credit card bills, personal loans, arrears and other debts, a consolidation loan could be a useful way of paying them all off so that you’ve only got to focus on one debt. Try to look for a low interest consolidation loan to avoid paying more in the long run.

Talk to your creditors about lowering your interest rates

You may also be able to reduce your debts by talking directly to your creditors. Some creditors will be sympathetic if you ring up and tell them that you’re struggling to pay back the debts. They may offer to extend your loan – this is something you don’t want to do, as while you could pay it smaller installments, you’re likely to pay more interest in the long run. You should try instead to get a reduction in interest, so that you’re paying less overall.

Pay off more than the minimum payment

To successfully pay off your debts, you need to try and throw as much money as you can at them. This means paying more than the minimum debt repayment each time. In doing so, your debts will get paid off faster.

This isn’t easy to do if you’re already struggling to afford your debt repayments. However, there are a few ways in which you may be able to free up funds to pay a little extra each month.

Make cutbacks to increase your disposable income

One way to pay your debts off faster is to make cutbacks, giving you more disposable income to throw at your debts. There are lots of ways to make cutbacks from driving less to eating less takeout meals to cancelling subscriptions.

It’s important that you make cutbacks that you can keep. While you can give up luxuries, there may be other smart savings to make in your home. This could include changing energy providers or even renewing your home insurance to get a better deal. Switching to new providers isn’t likely to affect your day-to-day life, but could make significant savings.

Big sacrifices are likely to have the biggest impact, but are the hardest cutbacks to keep up. This could include downsizing your home or giving up driving. Remember that these need only be temporary cutbacks while you pay off your debts.

Try methods of earning more

Rather than saving more money, you could try earning more money. This gives you an extra income to throw at your debts.

There are lots of ways to make more money. You could try selling some of your home’s clutter. You could also try making some money online as a side hustle – this could include answering surveys, reviewing products or selling homemade crafts.

If you’ve got a job, there could also be ways of earning more doing what you’re already doing. This could include taking up extra shifts or asking for a pay rise.

Find ways to stay motivated

It can be hard to motivate yourself to keep throwing money at your debts. There are so temptations that can result in you spending money elsewhere. In order to stay focused, you need to find ways to spur yourself on.

Focus on the benefits

Keep reminding yourself of why you’re trying to pay off your debts. A good reason to stay focused could be the added disposable income of no longer having to pay off debts. All that money you were earning and paying to creditors could finally be your money to spend at your leisure.

Paying off your debts could also increase your credit score. Nowadays, a good credit score can be important in all kinds of situations from taking out a phone contract to lowering your insurance rates to even getting a job. Showing that you’re able to pay off debts will look good on your score and build trust with future creditors and employers.

Finally, it eliminates the stress of having to keep track of debts. It’s one less cost to worry about each month.

Use budgeting apps

Budgeting apps can help you to keep track of what you’re spending and they can recommend how much you should be spending each week. This can stop your overspending and resorting to extra borrowing methods. There are lots of different budgeting apps out there worth comparing.

Allow yourself some treats

While you will likely need to make some cutbacks to pay off your debts, you should still allow yourself some treats so that you don’t get completely depressed and demotivated. For instance, rather than making a pact to have no takeout meals, consider cutting down to one per month. This will be easier to keep up.

Tell your friends and family

It’s important to be open with your family and friends when trying to dig your way out of debt. Spending less may require saying no to events or favours. You friends and family will be more understanding if you tell them you’re trying to pay off debts and they may be less likely to talk you into spending money.

Family and friends may even be able to offer support. You shouldn’t get them to pay off your debts (unless you’ve got yourself into a desperate situation in which debt collections agencies could be involved). However, don’t be too proud to accept small financial favours. Your family and friends may even be able to talk you out of spending money on things you don’t need. You could even ask them to guard your credit card when shopping or on a night out.  

Know when to look into other forms of debt relief

Sometimes debt can be so severe that drastic forms of debt relief are needed. These include debt settlement plans and bankruptcy. Some people are reluctant to take these forms of debt relief because of the stigma and credit score damage that they can cause. However, they may be the most sensible option if your debts have become so high that you physically cannot pay them off with all the scrimping and overtime in the world.

Debt settlement plans

A debt settlement plan usually involves paying someone to handle and negotiate your debts. Instead of paying your creditors, you pay a debt settlement advisor who then battles hard to reduce the amount you’re paying. It can be an effective way of lowering your debts, however it does not have a positive impact on your credit score.

Declare bankruptcy

Bankruptcy is the most extreme option you can take to pay off your debts. When you declare bankruptcy, your debts are wiped clean, however a significant amount of money from your income and assets is taken and given to your creditors in return. Bankruptcy will sink your credit score as low as it can go. You can however financially recover from bankruptcy – it may take a few years, but your score will improve. It can be the clean slate that many people need.

 

This is a contributed post.

 

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How To Dig Your Way Out Of Deep Debt