A Guide On How To Get Out Of Debt.

There are plenty of organisations out there willing to help you. But what if you’re the do-it-yourself type who likes to handle things all by yourself?

You’ll be happy to know that if you stay organised, diligent, and put in the grit, you can become debt-free with a DIY debt management plan.

Types of debt

Getting out of debt is not an easy process. Getting out of debt requires you to change your spending habits that led you into debt. It’s important to understand the type of debt you have. Through understanding the type of debt you have, you will be able to understand how it happened. This makes it easier for you to create a plan for paying off your debt.

Secured debt

Secured debt refers to a debt that is secured against the value of an asset. The debt is taken out against the value of an asset you already own or an asset you are purchasing. This means that if you do not pay back the debt, your asset may be taken by your creditors as a means of payment. Secured debts include:

  • Mortgages
  • Car financing
  • Secured personal loans

Unsecured debt

Unsecured debt is the most common type of debt. Unlike a secured debt, an unsecured debt is not secured against any asset should you fail to pay. Instead, a creditor lets you borrow money based on your creditworthiness (credit score). Since an unsecured debt is not backed by any asset, a creditor cannot seize your assets. If, however, you fail to pay off unsecured debts, your creditors will have to undergo legal proceedings if they want to take action against you. Unsecured debts include:

  • Credit cards
  • Personal loans
  • Overdrafts
  • Medical bills

Revolving debt

Revolving debt is an agreement between a lender and consumer that enables the consumer to borrow money up to a maximum limit, on a recurring basis. A revolving credit account is open-ended, this means that you can use and pay off your debt over and over, as long as the account remains in good standing. The best example of revolving debt would be a credit card.

Instalment debt

Instalment debt is close-ended. This means that the debt is repaid over a period of time in equal monthly instalments. Instalment loans include:

  • Mortgages
  • Vehicle loans
  • Student loans
  • Personal loans

How to get out of debt on your own

Write down your debts

Although the concept of being in debt can be disheartening, it's important to understand that you must keep moving forward. Getting out of debt is not a one-stop solution. Getting out of debt is a journey. Although it may seem overwhelming, rest assured that there is a way out of debt. Start by listing all of your debts on paper. These should include: your student loan, car loan, home mortgage, department store credit card, and any others.

Create a budget

The best time to create a budget is before you fall into financial difficulties. No matter what your finances look like right now, there’s always room for improvement.

Now that you’ve written down all of your debts, you can now create a budget. When creating a budget, it’s important to prioritise your debt repayments before other expenses so that you don’t fall behind. Your budget will show you exactly where your money is going. By following and looking through your budget every month, you’ll likely be able to find some great savings opportunities.

Be sure to leave some room in your budget for any unexpected expenses that may arise during the month.

Take control of your spending

Instead of blaming money, we need to start taking responsibility for our spending habits. As long as you’re spending more than you make, and not putting away any money at all, you can never get your finances in order. Unfortunately, most of us live beyond our means. Our budgeting skills aren’t working for us. This happens when we don't put much thought into how we're spending our income. That’s why many people find themselves in debt.

Regardless of whether irresponsible spending has contributed to your debt, you will find it easier to pay off your debt if you start to keep a close eye on your spending habits. Take the time each month to look over your budget. This way you can see exactly where your money is going each month, and you’ll be better prepared to make the necessary adjustments to reduce any unnecessary expenses.

Try to find an additional income

If you’ve tried and tried and tried to cut down on your spending that seems like it consumes you at times, but can’t find a way to free up enough money to pay off your debt. Perhaps you should take a look at alternative ways to make additional income. After all, if you’re drowning in debt, then getting yourself out of this financial hole is going to require you having some extra funds on hand.

You can explore some of the following ways to increase your income, even temporarily, such as:

  • Taking on a second job.
  • Doing freelance work.
  • Selling unwanted household items, jewellery or clothing.

There are a number of websites designed to help you boost your income by selling your unwanted items. This may offer some form of financial relief for people who are trying to get out of debt. Some of these sites include: Gumtree, Facebook Marketplace and JunkMail.

Prioritise your debt

Having multiple debts can be stressful and overwhelming. That’s why it’s important to know which debts you should prioritise over others. When it comes to repaying debts, some debts will always have a higher priority than others. Generally speaking, a secured debt will always be more of a priority than an unsecured debt. This is largely because the consequences of missing a payment are much more severe than if you fail to make a payment on a secured debt. For example, If you fail to pay your vehicle or home loan, your creditor can repossess these assets.

Another important factor to consider when prioritising your debt is to consider the size of the debt. It may be tempting to try and reduce the size of a large debt. You may consider trying to do this by paying more than the minimum amount. It is, however, always best to try and pay off smaller debts first. Typically, these debts have much higher interest rates. Instead of paying more than the minimum repayment on your larger debts, like your home loan, you should rather contribute more to your smaller debts.

Consider debt counselling

Don’t feel bad if you’re struggling to manage your debt. Sometimes all we need is a little help to get back on our feet. Getting out of debt can be complex, and sometimes professional experience is required to get your life back on track.

If you are drowning in debt, you’re facing a situation which can have close to fatal consequences if it isn’t handled correctly. Debt counselling is the right way to address your debts in situations where bankruptcy is not an option.

You are not alone. Debt is a common problem among many people around the world. And, it can be difficult to get out of debt. However, through some self-discipline and dedication, you can get out of debt. We're here to help with that. Contact Credit Health for helpful advice on how you can get out of debt.

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