Like drugs, alcohol or adrenaline, debt is like an addiction because it’s either hard or impossible to break the habit. People never start out with the intention of having an uncontrollable debt problem. Most of us simply want an extra pair of shoes so we use our credit card and perhaps purchase a holiday to wear them on; but where’s the harm in that? A year down the line and your outgoings are stretching above your income and you know the answer. Debt is like a chain around your neck that gets heavier by the day, week and month.
Step 1 – List Your Incoming and Outgoing Cash
This is the time to get real and be honest with yourself. If you have been counting on money or convincing yourself you have a certain amount of disposable income each month then now you need to put everything on paper. People often find they have much less than they think when they get down to brass tacks. To do this properly, you need to have all your card statements in front of you along with your bank statements and add that to any other income or outgoing not processed through the bank.
Step 2 Acknowledge Creditors
The first thing you need to do is recognise you have debts. You obviously know you have them, but when you are ignoring the calls from creditors, you are not dealing with them. This is the first nut to crack, but start as you mean to go on. The best way to do this is by contacting them directly one by one and asking them to freeze interest and take a minimum payment; which is usually significantly lower than they would like. You will need to explain to the creditor that you have many outstanding debts and you are trying to reduce them all at a rate that will stop you missing payments.
Step 3 Work Harder for Treats
If you are finally working your debts off, think about ways to increase your income or lower your outgoings and don’t reward yourself with treats like days out unless you have earned them; by creating extra income above the norm. This way you will not be tempted to obtain more credit and jump straight back into the cycle of debt. Many people make the mistake of thinking they can handle another debt because they negotiated payment plans with creditors that freed up some extra cash at the end of the month.
Step 4 Make a Commitment to Yourself
It’s unlikely you will have agreements with all of your creditors to end the repayments at the same time because some will accept a certain minimum and others will demand more; so your debts will not all end together. It’s tempting to keep the extra cash that becomes available every time one of your creditors is paid off, but you should consider directing the extra money to one of your other debts. This will help you become more responsible with money when you return to a more comfortable position.
Step 5 Become a Debt-Free Evangelist
I’m not suggesting you go to church, but you often find the people who despise lenders, banks and any other organisation that puts you in debt are one of two types of people. They have either been deeply in debt in the past or they have been close to someone who has. Those people will work their socks off to get what they want rather than borrow and they usually have much more free income as a result.