Average household debt across the globe has been soaring. People are less patient to save for things they want, and with the availability of credit so easy, they don't have to wait. While some debt is good debt and used for investment or productive purposes, a lot of household debt is bad debt. If your debt levels are on the rise and you don't see a clear way out, here are some strategies to consider so you can start winning the battle and eventually be victorious in your war against debt!
War Against Debt Strategy #1 – Know What You Need
If I asked you how much you need each pay cycle to cover your essential expenses, could you tell me? If the answer is no, then it is time to do a budget. Otherwise you are fighting the war against debt blindly. This doesn't need to be a fancy activity. A pen, paper and calculator is all you need to do a budget. If you want to get a bit more advanced, then there are a lot of budgeting and money management apps out there to use as well.
The main objective is to know what and who you are fighting against in your war against debt. How much do you earn vs how much you spend is the starting point, followed by where do you spend it. This is where the tough decisions need to be made. If you are spending more than you earn, you need to look at what non-essential expenses you can cut out and what lifestyle changes you need to make in order to achieve that. If you have access to your bank or credit card statements then this will help you identify all those small expenses and purchases that have been going unnoticed for years, but have been quietly increasing your credit card debt levels.
Once you know your budget, you have a basic battle plan ready to go. The next step, improve your firepower.
War Against Debt Strategy #2 - Consolidate Debt
If you have multiple debt all with different interest rates, then you should look at consolidating them into one loan at a lower interest rate. Not only will this be easier to manage and keep track of, you can potentially save a lot in interest, fees and pay off the debt faster, or reduce your monthly commitment if cash flow is tight right now. You should begin by writing down all of your debts, how much the interest rate is and how much you currently pay towards it each month. Typically your credit cards and personal loans will have the highest interest rate, followed by car loans, student loans and then your mortgage. Be warned however, if you get a lower interest rate via debt consolidation, but pay the debt off over 5 years instead of the remaining 2 years on the loans, then you may end up paying more interest by the time its paid off! Sure, you may lower your monthly repayments, but you could end up paying more interest. Turning short-term debt into long-term debt has its disadvantages, so do your research and understand the pros and cons. You need weigh up the benefits more spare cash now, vs paying more interest over the long term. It is wise to speak to a Financial Advisor or Mortgage Broker who can help explain this to you and do calculations specific to your personal circumstances. There are a number of options when it comes to debt consolidation, so speaking to a professional will help you understand which option is best for you.
War Against Debt Strategy #3 – Negotiate With Debt Collectors
If your debt levels have escalated and are now out of control with debt collection calls, don't worry, the war is not lost.
Did you know that you can negotiate with debt collectors to settle your debts? What does settle your debts mean? It mean you come to an agreement with the debt collector or credit to pay only a fraction of the amount owed. For example, if you owe $10,000 on a credit card, the debt collector may agree to close the debt for a payment of $7,000.
So how do you get a debt settlement approved? First, it is important that you clearly explain your financial situation to the debt collector so they can understand why you cannot pay the debt in full. Second, you need to articulate to the debt collector how much you can pay and where you are getting the money from.
Third, you need to tell them when you will be able to pay it. Negotiating with debt collectors can be a very stressful and embarrassing experience, particularly when you are on the telephone where family and friends may over hear your conversation.
There is another options, and that is to prepare a professional debt settlement letter that you can present to the debt collector or credit to review. You will usually have an email address that you can send it to. If done well, a professional debt settlement negotiation letter can help you get a debt settlement approved without the need to speak to anyone. You send the debt settlement letter to the debt collector, they approve your offer (or negotiate over email) and once an agreement has been made, you transfer the funds electronically to settle the debt.
If it sounds like a lot of work, Settled. offer a digital platform to create a professional debt settlement negotiation letter. Simply enter your details and our platform will generate a debt settlement letter and deliver a copy direct to your inbox so you can send it to your creditor or debt collector.
When The Debt War Is Won - What Next?
If you are successful in getting on top of your debts, then the most important thing is not to repeat the same mistakes that got you into trouble in the first place. Have a budget, spend wisely and build up a kitty for a rainy day.
Good luck with your war against debt and remember, Settled. is here to help if you need it.