Private debt in the UK is now more than £1.4 trillion, and average household debt has risen to £54,000. It sounds bad, but in actual fact the debt has lowered since 2007 because, during a recession, people tend to borrow less.
There’s nothing worse than money problems. When they strike, so do the constant phone calls from banks and credit card companies, which lead to sleepless nights and added stress. And worse still, when you look at your bank statement, you are faced with the bad news.
Does this sound familiar?
Of course, it’s easier to bury your head in the sand and ignore it. That’s what most of us would do, right?
Source: Personal debt is about to rocket
The problem is, doing this only makes it worse. By staying in debt, you incur more fees and generate higher interest rates, which in turn results in you owing more money and suffering with more misery. In fact, it becomes an endless cycle of money-worry issues and financial pressure.
Admittedly, paying off your debt sucks, but it’s the best thing you will ever do. It’s not easy, and it might even seem impossible. But it’s not. And with willpower and determination, you can take that first step, climb the ladder of repayment and finally leave debt behind for good!
So let me guess, you want to know how, right?
Peachy has put together some tips on how you can get yourself out of your own personal finance nightmare and instead, enjoy sweet dreams and peaceful nights once again.
Analyse your spending habits
Make a thorough list of how much you earn and how much you spend, including all of the minimum payments on your debts. Then rank each of your spending in order of importance, and to make sure that the highest interest rate loans and repayments are at the top of the list. Then, for each item you find at the bottom of your list, you need to ask yourself “Do I really need this?”
Are you eating out at lunch time? How about making food at home and taking it with you. Are you addicted to cable TV? Try reading instead (it’s good for your eyes!). Drinking at the bar on the weekend? Try socializing with friends at home instead.
You will be amazed at how much you can save by simply changing a few of your daily spending habits. Try to cut out 1 or 2 luxury items and use that money to pay off more of your debt.
Empty Your Savings Account
Yes, you have heard it all before – Save money for a rainy day… and it’s a good idea in principle, but if you have a mountain of debt, then it just doesn’t work to try and save and try to pay off debt at the same time. The interest you earn on your savings is much less than what have to pay on the loans. Trying to save money means you are simply throwing it away.
Use any savings you have to pay off as much as debt on high interest rate loans. This way, you increase your credit score and if that rainy day does come along, at least you can borrow the money again.
Consolidate Your Debts
Try to stop thinking about your individually and try to combine them instead. If you can consolidate all of your debt into one monthly payment, you will undoubtedly save money on the interest and make your life simpler.
To consolidate your debt, select a bank or credit card with a low interested rate. There are many banks that will be able to offer toy reduced rates or even a 0% interest on balance transfers, so take advantage of these offers and the get the best deal for you. Even if you can’t consolidate everything into one debt, reduce the payments as much as you can.
Pay off at Least the Minimum
We cannot stress this enough – You must pay off at least the minimum on every debt – This is the golden rule. By paying off the minimum, it prevents you from additional charges on the debt, which can grow fast and add up quickly.
If you’re going to miss a payment, it could be worth taking out a short-term loan which gives you the money in hours rather than days, just to avoid the charge. Make sure that this approach is beneficial to you, and that you can pay back the loan in the agreed time frame.
Consider the Avalanche Method
As well as paying off the minimum on all your debts, single out the one with the highest rate of interest and pay it off aggressively, by even paying off double or triple the minimum payments.
You will quickly find that you reduce that debt much faster, and once it has been fully paid off, you can then move onto your next highest interest rate debt, and then the next.
As your personal debt gets lower, your income will increase – meaning the second debt will take less to pay off than the first, and the third debt will be paid even faster than the second, and so on. This method allows you to pay off debt fast and you will become debt free in no time.
What to do next?
Whether you pay off your debt to become a happier person, or you have made it your new year’s resolution to pay off your debts, stick it out as it will be the best thing you ever do.
We hope enjoyed reading this article, and we enjoy sharing saving tips with you.
Best of luck paying off your debt. And remember, it will be the best thing you ever do.
Do you have any tips for paying off your debts? Let us know in the comments section below.