Debt can quickly get the best of you, especially with a pandemic that just doesn’t seem to end and an economy that’s about as lively as a sloth in the sun. But there are ways to get your head above water again if you’ve borrowed too much money.
For starters, it’s important to know there’s no quick fix or magic solution. It takes time and dedication, and there will be hurdles along the way. Yet if you stay focused, you can improve your situation. So follow these four steps by finance blogger Brendan Dale for some practical ideas that will help you to chip away at yours.
1. Make a list
The first thing to do is to write down all your debt. Take note of who you owe money to, what it was for, how much you still owe them, and, very importantly, what interest rate they’re charging. Also write down whether you are in arrears or not.
You may have to phone some of your credit providers to get this information, and it could be awkward or even embarrassing if you know you’re in arrears. Just do it!
Ignoring the problem will only make things worse. Also, credit providers are generally understanding and will make a plan to help you so that you can pay off your arrears.
2. Prioritise and plan
Now that you have this information, it’s time to prioritise your debts. Although you need to continue to pay all your bills, the ones that are in arrears or which have a particularly high interest rate are more urgent. Even paying just a small amount extra on them will help you.
If you owe only a small amount on one or two of your accounts, pay them off and close those accounts. This will help you when it comes to step 4 below.
3. Don’t take on new debt
It may be tough to survive the month without taking on more debt. For many people the reality is that their salary just doesn’t last until the end of the month. This is when it takes particular dedication and focus to make ends meet and minimise new debt.
Once you can survive a full month without taking on new debt, you’ll see that there is light at the end of the tunnel. When you reach this position, it’s time to move on to the next step.
4. Use the snowball method
The snowball method of paying off debt suggests that you start paying a little extra towards the smallest debt you have while continuing to pay the required instalments on the rest of your loans.
Once the smallest debt is paid off, close that account and use the money that you were paying towards that debt to pay extra on the second smallest one, which will now be your smallest debt. In this way you will keep paying the same total amount towards your debts while also slowly chipping away at them.
Think of it as rolling the payment on one debt over to the next. Each time you do it you will have more money to pay towards the next account – and be a step closer to getting rid of your debt!
This article originally appeared in Today magazine, Issue 1 2020.
By Mark van Dijk
Mark is an award-winning writer who focuses on business and industry news.