For many people, just hearing the word ‘debt’ can bring them out in a cold sweat. However, debt is not necessarily a bad thing, it’s often an unavoidable necessity, but if it’s not managed carefully it can easily ruin lives. It’s vital to recognise if you’re getting out of your depth with your borrowing before things spiral out of control. So do you have a debt problem?
Most people aspire to purchase their own homes. Unless you are particularly fortunate, you’re going to have to get a mortgage to bridge the gap in your finances, before you’re in a position to afford one. A mortgage is a loan and therefore puts you in debt with the mortgage lender. This is an example of a secured loan. The secured element is your home and you risk losing it if you default on your monthly payments.
Nowadays, most people have a credit card. It’s generally a safe way of making purchases and comes with certain legal protections, for the consumer. Credit card debt is an example of an unsecured loan. As there is no security, loan companies tend to charge a much higher interest rate. This reflects the increased risk of the possibility of not receiving their money back if they experience any kind of financial hardship.
As long as the debt is manageable, in that your incomings more than cover your outgoings, then it’s not generally a problem. It’s when debt becomes unmanageable that the situation can soon spiral out of control.
Sometimes debt becomes unmanageable as we haven’t handled our finances as well as we could have, such as overspending, gambling etc. Sometimes circumstances just conspire against us and leave us in a desperate financial state, beyond our control.
If you have a debt problem, no matter how acquired, there are steps you can take to try and help alleviate the situation.
1. Work out how much you owe
When people start to get into unmanageable debt they often go into denial. They just try and avoid it and hope it will go away. Not opening lenders’ letters or deleting emails without reading them are classic denial symptoms.
Of course, debt doesn’t go away on its own. You may feel too anxious to work out your exact level of debt but until you learn the true picture, it’s going to be difficult to make any kind of plan to address it. Calculating your monthly incomings and outgoings will give an accurate status of your financial health.
2. Stop the debt from getting any worse
Once you’ve calculated how much you owe and to who, you need to start addressing it. If the problem is credit card debt, can you trust yourself to simply reduce or stop spending on your card? If you can’t, then you have to consider cutting it into pieces, to avoid the temptation. Do you have any savings you could use to pay off some of the debt? Could you think of ways to raise extra cash? If you have a gambling problem or any other type of addiction that is contributing to your debt, then there are organisations that can offer support. Just search online.
3. Draw up a plan to tackle the debt with your lenders
The next step is to contact your lenders if you’re still struggling to make the repayments. Admitting you have a borrowing problem isn’t easy but you shouldn’t feel ashamed. It’s a common issue and doesn’t make you a bad person. Your lender will actually appreciate that you are being proactive in trying to find a solution, rather than avoiding the problem. They are therefore likely to take a sympathetic approach and will try and work with you on a plan to reduce the debt, at a level you can manage. Of course, they want their money back as soon as possible, but it’s not in their interest to make unrealistic demands that are likely to push you into defaulting payments. Just be open and honest about your financial wellbeing.
4. Stick with the plan
Once you have payment agreements with your lenders, do your best to stick to them. Learn from any mistakes you may have made in getting into debt in the first place and try not to repeat them. By using a budgeting app or printable download you can keep track of where your money is going and therefore manage your spending.
If you feel you’re struggling to cope with any repayments then discuss this with your lender. Do not default and say nothing. Always try and stay on good terms with them. It’s important to try and protect your credit score as much as possible or you could be denied future loans, such as a mortgage.
Anybody can experience debt problems for a whole host of reasons. The bottom line is you need to own the problem and not deny it’s happening as things will only get worse if you do. If you feel daunted by the process you don’t have to go through it alone. Help and advice are available online for any type of debt problem, such as here