As the credit crunch bites and recession follows the question of how to get out of debt is being asked by more and more people. Many have lost their jobs in the current recession, while others may have had a long time off work through sickness. Hours may have been reduced. resulting in less income. Opportunities to work overtime may have dried up.
It is so easy to get into debt when you go through a bad financial patch. The credit card balance mounts up. You take out a loan thinking that things will soon be back to normal and you can then pay everything off, but so often it turns out not to be so easy. You may be unable to find another job, or your company reduces your hours permanently.
Even if the situation is resolved and your income goes up again, often the debt is not as easy to pay off as you expected. Here are a few steps to help get you started.
• Do a budget! This is the best place to start to sort your finances.
• Keep making your monthly payments on time. Make sure you budget for it and do not use this money for spending.
• Pay the highest interest debts off fastest.
• Cut up your credit cards or at the very least put them in a safe place but not in your purse.
• If you receive a windfall such as a cash gift or an inheritance pay this off debt. Do not spend it!
If these strategies are not working for you, there are several things you can do.
• Debt Consolidation is a way of repaying a lot of small loans or credit card debts with one large loan. Payments can be cheaper each month and will help you to keep track of all your debts. A word of caution though: Do not start accumulating more debt because the pressure has come off. This unfortunately is an easy trap to get into.
• Negotiate the terms of your loans with the lender. Arrange for a longer period to pay. This will make your monthly payments smaller. Be truthful with the lender and explain your situation. If you are making an effort this is seen in a favorable light.
• Apply for a 'payment holiday' if you cannot make your payment this month. Remember that interest will still be accruing.
• Bankruptcy is really a last resort and should not be taken lightly. Bankruptcy can be voluntary (where you initiate it) or forced (where you have a court judgment against you). In bankruptcy proceedings you lose all your assets and you will find it very hard to get credit for many years to come. In terms of how to get out of debt, this is certainly not the best way, but sometimes some people have to resort to it.
The best answer on how to get out of debt is to take stock of your situation and be realistic about what you need to do to make things right. Speak to your bank or credit card provider. If you need extra help seek it out with a budget advisor or financial planner.
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