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    A Guide to Managing Your Debts

    Debt is something that worries people from all walks of life. Even those who are well to do and have a higher income often end up borrowing money from family or friends, or end up spending a lot with their credit cards. In the process, they accumulate a lot of debt and find it a little difficult to pay off the amount that they have borrowed. For many people, debt management is a matter of concern and they are not sure how they can balance between meeting their expenses and paying off the creditors. However, managing debt does not have to a Herculean task and it is certainly something that is doable for everyone.

    If you are someone who has a lot of debt to pay and is looking for better ways to manage your debts, here are 10 steps that you can follow that will help you in achieving your goal of getting relief from debt.

    Managing Your Debts

    Steps for Managing Your Debts

    Step 1 - Do not increase your debt

    The first step is to ensure that your total debt is not increased at any cost. If you have credit cards that have reached the limit, keep them locked somewhere safe. When you're done, you should not have access to have more than one credit card and that card should have some available credit left for you to use in case of emergencies.

    Also get rid of so-called "convenience cards", such as fuel cards, customer cards department stores, etc. till you can keep all your expenses under control. In case you end up using that card, make sure that you make payments for it on time.

    Step 2 - Record your expenses

    The second step is to record your expenses. The idea to write down their own expenses is a concept that most people find boring at best and useless at worst. However, this is an idea that can go a long way in helping you to free yourself from debt. You are in debt because you spent all the money that you possessed.

    Like most people, your debt does not result from a single purchase of immense value, but many small expenses accumulated over time. To avoid increasing your debt, at first you need to be conscious of how you spend your money. Make sure that you make a list of all your purchases, whether big or small, every day.

    Step 3 - Categorize your expenses

    Divide your monthly expenses into categories, according to these logical groups: "I must have", "I should have" and "I wish I had." In the "I must have" list the things that you will need to purchase for your survival and sustenance, such as food, rent, medicine, food for your pets, etc. "I should have" is the group of things that you need, but for a while you can do without; for example, new clothes, gym membership etc.

    The group "I wish I had" should include the things that you do not need at the moment, but which will improve the quality of your life; for example, magazines, newspapers or cable TV subscriptions, dining out, purchasing a new mobile phone etc. By doing so, you will realize how you spend the money and you can usually figure out how you reduce your spending.

    Certainly you do not want to give up all the things listed in the groups "I should have" and "I would like to have", but you should try to avoid spending on them as much as possible. By avoiding one of your regular expenses, you can heal your debt. Surely you'll want to pay more than the minimum amount required on your credit card, otherwise it will require a very long time to repay the debt.

    Step 4 - Prepare a spending plan

    Based on what you've recorded, prepare a spending plan. Write down the expenditure incurred in the last month for each of the above categories, to plan the expenditure for the following month. Do not worry if you feel that you have spent too much. For now, just write. If you spent 250 dollars for new clothes, write it down and similarly, If you spent 200 dollars to refuel your car, just note it as well.

    Step 5 - Analyze your budget

    By analyzing your budget, you will be able to deduce how much money you can set aside every month to make payments and reduce your debt. By examining your new budget, you can easily find ways through which your overall monthly expenditure can be reduced. However, you need to be realistic and make sure that you do not end up excluding expenses that are unavoidable.

    For example, you are spending money on gym membership, but do not use it ever in spite of your good intentions. You might as well avoid renewing the membership and the save the money for other essential expenses. On the other hand, you might be spending a lot of money on fuel and might think that you can opt for public transport instead of using your car. However, such this idea may not be realistic because you will need to use your car to travel fast and conveniently. Hence, you should not try to avoid using your car just to reduce your fuel expenses.

    At the end of this exercise, you will have a clear idea about how much money you can save to repay your debt.

    Step 6 - Create a Debt Consolidation report

    Don’t worry! It is easier than it sounds and all you will need to do it consolidate your debt and get a clear idea of the total amount of money that you owe. Calculate how much money you have to give, to whom and under what terms. Often debts may seem unbearable because you do not know the actual amount. Connect all the loose ends and make a simple list of things you need to pay for. Note down all relevant information, including the name of the creditor, the total amount, the minimum monthly payment and the interest rate.

    Step 7 - Make a priority list of creditors

    In this step, you will need to make a priority list of your creditors and you can prioritize them based on the amounts you owe, the interest rates charged, payment due dates, tenures 9in case of loans) and so on.

    Step 8 - Start making payments

    This is probably the most important and also the most difficult steps in getting relief from debt. Get what you managed to set aside in step 4 and use it to pay off debts. It is a good idea to pay off those creditors that are in the top of your priority list. Paying off your old debts will be very helpful to you in the long run as it will help you to improve your credit score and also let you borrow more money in the immediate future.

    Step 9 - Keep paying your debts

    Wash, rinse and repeat. We're just kidding, but you get the idea. This process of making payments and paying off your debt will gradually become easier. Over a period of time, you will be able to make a perfect budget and will also not have a lot of difficulty in sticking to your budget. You should continue keeping aside a portion of your income to making payments for your credit cards, loans, line of credit etc. every month so that your overall debt can be reduced. In other words, you should continue to pay off debts according to the list of priorities that you have created.

    Step 10 - Stay strong and stick to the plan

    Do not give up and make sure that you stick to the plan so that you will be able to achieve success in the long run and get rid of your debt without a lot of difficulties. There is no magic potion that will help you to get rid of your debt overnight. Quick repairs do not last, but learning how to manage your money can brighten your prospect of paying off your debt. You will not have to worry about the creditors and instead, your time and energy can be spend on activities that are more productive and pleasurable.

    Advice

    Consider the idea of ??getting a loan to consolidate your debt. You can consolidate all your debts into a single account, possibly with low and fixed interest rate. You can use the loan to pay off all creditors and then pay monthly installments to pay off the loan.

    Most creditors will work with you to find a satisfactory solution. If you take the initiative to contact them to explain your reasons, it is likely that they will want to help, offering terms that can be useful to you and will help to keep the debt under control.

    If you want to buy something, save enough money and then buy. You have to spend only for reasons of absolute necessity (home and car). Do not spend money on furniture, small appliances or vacations. If you cannot afford to pay with cash, it means that you cannot afford to buy.

    There are three ways to prioritize the creditors for making payments to them: first, you need to pay the creditors that charge you the highest interest rate, then you pay those to whom you owe the highest amount of money and then you pay those to whom you owe the least amount of money. Each of these has advantages. Such a step will help you to be methodical and let you enjoy the satisfaction of paying off your debt, along with getting a marginal relief from your debt.

    Reserve some money for you first when you get your paychecks. Many people put debt creditors above everything, even themselves. You should avoid doing that and instead set aside some money in your budget for your survival, to serve as a shock absorber for your expenses. The amount that you save within a few months should ideally be sufficient to guarantee that your basic expenses are met for a period of 3 to 6 months. Do not be frightened by it: put aside something, anything, to meet your sudden expenses (for example, cost of repairing your car due to an unexpected failure).

    Paying in cash is the safest way to avoid any financial mistake, as well as bank charges. Do not carry a lot of money with you so that you can avoid overspending when you go out to shop. Whenever you can, use cash. Paying in cash has a psychological impact much more significant than paying by card. In fact, you will have the feeling of spending more money, so you try to spend less.

    Draw up a chart showing what your total debt divided by those to whom you owe (be sure to include the interest rate, from smallest to largest). Start making monthly payments to each creditor and, when you are totally satisfied with one, use the money that you save in a few months to pay off the money that you owe to another creditor, by making additional payments after paying the monthly instalment. In this way, you will be able to pay off all debts and then leave for the last the biggest debt that you have (probably, the mortgage on the house).

    At this point, all the amounts that were reserved for creditors whom you have paid will be dedicated exclusively to the payment of the mortgage, which you will be able to pay more quickly than you think. You can also opt for transferring your mortgage to another bank or financial institution to avail a better rate of interest and to reduce the total amount that you owe. These programs will help you to rapidly reduce the principal of the loan, thus favouring the reduction of interest.

    If you think you necessarily need help, consider the idea to join a group of Debtors Anonymous. It is a 12-point program for people who have debt problems and unchecked spending and can be a great source of support and inspiration for you if money management is your habitual problem. Such groups operate on social media platforms like Facebook and it will not be a difficult task joining one such group.

    Can you increase your income? Most people can find ways to increase their income in a relatively painless and effortless manner. Do you have any hobbies or skills with which you can earn some money? Do you have goods to sell or the ability to create something that people would buy on eBay? If so, this money can go to heal the debt and could serve as a new means of earning more money for you over time.

    If you need customized advice about how to manage your debt, you can opt for the services of a "credit counselling" agency as they can help you to deal with your financial situation. However, when opting for such an agency make sure that they have sufficient number of counsellors working during office hours who can be easily reached over the phone and can provide you with immediate help. Be wary of an agency that asks you to leave a message to speak to customer service. In fact, this could imply that the agency is understaffed and has difficulty understanding the needs of customers. Be sure to ask about service fees, management programs and training they offer.

    Opting for the services of a credit counselling agency is certainly an option that you can explore if you are in dire need of help. There are credit counselling agencies that help consumers by offering plans for debt reduction. Simply put, an officer of the agency will meet you to draw up a plan for you to pay off your loans. The officer will negotiate on your behalf with your creditors in order to get the lowest rate possible that, in turn, will reduce your monthly payments and keep intact your creditworthiness. The credit counselling agency can be a private company, a public or non-profit organization. Read carefully all the terms and conditions before hiring such an agency and make sure you've figured out what the fees payable. Also be sure that your credit rating is not affected in any way.

    An effective and easy way through which you can get extra money to pay off your debt could be through refinancing your house. Refinancing your mortgage can be the help you need to settle your debts, because the money you've saved each month with payments at low rate of interest may be used to pay off other debts. Note: You are risking your home if you choose this option.

    Contact your lenders and creditors such as the credit card issuer, the bank who provided you with a loan and so on. They will certainly pardon your debt and tell you that you will not have to pay them anymore. However, they might reduce the interest rate they charge you. If you have a rate equal or greater than 12%, ask if you can get it reduced. Why should you consider such a proposal? Your creditors certainly do not want to see you fail because of their loan, but they want to get back their capital. It is clear that a substantial interest rate is very appreciated by them, but if they realize that you might not be able to repay the loan, you can certainly expect that you will be offered an interest rate advantage.

    Do not think of debt consolidation or credit counselling agencies as your first choice. Instead, they should be a last resort! Although you may be tempted to make use of these resources, solving the problem by your own efforts will help you understand how to deal with things like that and, especially, how to avoid relapsing again.

    Realize that the companies that issue credit cards do not do it for friendship. Their goal is to have you as a debtor always paying a minimum rate on their card for the rest of your life. Therefore, you should close your debts with each company and, after a couple of months consider the idea of paying off the credit card balances in full every month. For example, if you spend a thousand dollars in month, making a payment of the same amount to your credit card account within the interest free grace period. In the process, you will be able to keep your credit card balance under control and will also avoid paying any interest.

    Warnings

    Avoid opting for payday loans as they can increase your debt with a snowball effect. Before resorting to a loan of this type, try any other alternative: borrow from family and friends, take a mortgage on the house or get a loan against your deposits and so on.

    Borrowing and then spending the borrowed amount is chronically a very dangerous habit, like alcoholism or any other addiction. Spending can be a way to escape problems that are much deeper. Talk to a professional if you think you have a similar problem.

    Do not be rash. Closing your credit card accounts or a line of credit can lower your credit rating. Hence, you should choose wisely and only close those cards that offer you a lower limit. You can keep those that offer you a higher limit as long you continue making payments for them on time every month.

    Be careful when you transfer balance from multiple credit cards to a single card. Operations of this type will lead to an increase in debt.

    Never share too much personal information to a data collection agency, because everything you say will be recorded and will be kept for future reference and so there will be a risk that your data might be leaked and released to a 3rd party. Keep your conversations with them short and pleasant. Do not get fooled into answering personal questions.

    If you are addressing an agency that deals with financial problems, be sure that they are reputable and are not the subject of excessive complaints. If you encounter any complaints when you gather feedback about them, be sure that they have been able to resolve the complaints according to the expectations of the customers.

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