What is the most effective method of managing debt? How can you quickly reduce your debt burden? How much is your annual interest costs?
These are all questions that you should have the answers to but may not have a clear idea about what they are – not to worry I will take you step by step through a checklist that will ensure that you have a careful inventory of all items that will make up your debt.
- Mortgage – you probably know that your house is really a huge liability as you keep on pumping more and more money into it (in the form of repairs and maintenance) can potentially turn into a huge money pit so this is definitely a huge part of your debt burden.
- Vehicle lease – is also a part of your debt so time to unload it – we will soon tell you how you can do this
- Student loans – also part of your debt
- Credit card debt
- Personal loans
- Informal borrowing from family and relatives
- Borrowing against assets- car, insurance fund, retirement fund
- Pay day loans
- Loans from employer
- Small business loans
- Other loans
You need to create a complete list of all the items that you owe to create a plan to deal with reducing your debt.
What are the methods that you can reduce your debt:
- Settle your mortgage by selling the house and moving into a rental property – this can make sense if you expect property prices to fall making renting cheaper than owning. Also a small house or apartment out of town makes sense is prices are considerably lower and your transportation costs will not be too high after the change in address. Alternatively you can consider rescheduling or renegotiating your debt with your bank or with a new bank if you find that interest rates are falling or that your credit score has considerably improved.
- Leasing a car can be expensive so buying a used older car does make it more economical if you avoid high lease costs – remember that most rich people became that way by spending less on cars and saving a lump sum by avoiding buying a new car. There are very few upsides to owning a new car.
- Student loans – form a major part of your debt if your just starting out so find a job that will take over repaying your debt is a major plus factor. Many Government jobs and armed services do have the option of paying off your student loans if you agree to work for a stipulated number of years. Also some employers will agree to take over your student loans if you agree to meet some pre conditions at the time you are being hired.
- Credit card debt forms a significant portion of an average persons debt and is an indicator that expenses have not been budgeted for properly. It is a bad idea to use your credit card as a overdraft facility as interest rates are too high compared to personal loans or traditional overdraft facilities. If you find that you have a tendency to overspend then it may be time to get an overdraft facility from your bank in the form of a revolving loan – you bank will be happy to lend you part of your salary as an advance which you can use to pay off your credit cards. Remember that you need to negotiate a good rate with your bank.
- Debt consolidation – if you find that you have too many debts to keep track of keep missing payments then it may be time to consolidate debt and make it more manageable. You may also be able to negotiate a good rate with the debt consolidator if your credit score is good.
- Debt counselling if you find it difficult to maintain expenses within a budget or having extreme difficulty managing debt you can go to a debt counsellor that usually have much lower fee than financial advisors. Will also help you find the correct way to manage your debt
- Bankruptcy protection can be a solution if you are being threatened by creditors going to seize your assets. Presenting a repayment plan to court will limit a creditors ability to seize your assets so long as you maintain a steady repayment to creditors.
- Small business loans – can be rescheduled for a longer repayment term if you can present a good repayment plan to your bank or creditors. You should also opt for more supplier credit to boost working capital. Export finance loans are also a possibility if you have guaranteed orders from your customers. Factoring is also a means of getting financing using receivables. Consult a financial advisor if these are suitable for your small business. Also local business chambers will also have financial programs that you can use.