How to Solve Debt Problems
When you owe a lot of money to creditors, it can take its toll on your life.
Constant collection calls combined with mounting late fees can make you wonder how you will ever work your way out of your financial predicament.
If you are in this situation, you are not alone.
Every year, thousands of Canadians get into debt problems.
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31 percent of people say they find it difficult to make ends meet.
Fortunately, though, there is always a way out – even if your borrowing is utterly unsustainable.
Sometimes it takes weeks, and sometimes it takes years, but debts won’t remain a burden on your life forever.
Here are some of our strategies for solving debt problems:
Pay Of High-Interest Debts First
If you are in serious debt, you may owe money to more than one creditor.
Usually, interest rates will vary between different credit facilities.
Car loans, for instance, tend to be cheaper than personal finance.
Debt avalanching is the practice of paying off your high-interest debts first while making the minimum allowable payments on everything else.
Credit cards and personal loans tend to charge high rates of interest, sometimes over 30 percent.
Dealing with these debts first can reduce your overall interest burden, making your remaining borrowing more affordable.
Downsize Your Life
If you’re in debt because you’ve overextended yourself financially, you may want to downsize your life.
Moving to a smaller property, selling your car, and hosting a firesale of some valuable belongings (like electronics and jewellery) can all help tremendously.
Many people find that the route to financial freedom was sitting in their garage all along.
Some people get into financial trouble because they don’t have a good grip on how much they earn each month (or how far it can stretch).
Therefore, it is vital to start budgeting so you can work out whether excessive spending is a problem for you.
Sometimes you will find that you are blowing money on non-essentials (such as entertainment), and that is what is causing your financial difficulties.
At other times, you discover that your outgoings are just too high, relative to your income, and you need to rethink where you live.
Consolidate Your Debt
Debt consolidation is a tool that allows you to pay off all your high-interest unsecured debt using a new, lower-interest loan.
Over the long term, it helps to save you money and lets you deal with a single creditor, instead of many.
People who qualify for debt consolidation loans usually have good credit and regular incomes.
If you go down this route, be sure to work with a reputable lender.
Some companies will charge high admin or late fees, which can put you financially in a worse position.
Pay Off Your Smallest Debts First
Paying off your debts is partly economic and partly psychological.
Many people have the ability to get debt-free but may believe that the problem is impossible to solve.
Paying off your smallest debts first can be a way around this mental block and a tool to build momentum.
Here, you pay off small loans first while making the minimum repayments on your larger debts and then work your way up.
The more debts you pay off, the more confidence you gain that you can take back control of your finances and move on with your life.
Avoid Taking Out New Credit
While credit might seem like a benefit, there’s no such thing as a free lunch.
Lenders charge high fees, getting you to pay for the cash they give you.
Resolving to avoid borrowing more money, therefore, is the first step on the road to solving your debt problems.
You have to learn to live within your means.
How To Solve Serious Debt Problems
Of course, if you have serious debt problems, a little financial rejigging here and there might not be enough.
Sometimes, the amount of money you owe is so vast, relative to your income, that paying it off through regular channels is impossible.
When you’re in debt, it is essential to consider other knock-on effects on your quality of life.
Many people experience relationship problems, bouts of depression, and high levels of stress that affect their professional aspirations during money troubles.
These factors alone are reasons for taking decisive action to deal with your debts and getting back on the path to financial health.
Serious debt problems usually take the following form.
First, you find yourself unable to meet the minimum monthly payments from current income.
Circumstances force you to take out secondary loans to make payments on your primary borrowing and so on.
Soon, you have practically no wiggle room in your budget, and you’re unable to pay for essentials, like utility and heating bills.
Even with extra borrowing, you make late payments, and you start getting letters from creditors and debt collection agencies, warning you of the prospect of legal action.
Ultimately, these circumstances place an intolerable emotional burden on your life, and you can’t think about anything else.
While the money is an issue, this distress is the real cost of debt.
Getting Professional Help
Fortunately, even people in serious debt problems can solve them with the right help.
Bankruptcy experts and licensed insolvency trustees can work with you to create a personalized plan detailing how you will escape from your current predicament.
Sometimes, overcoming debt is as simple as changing your spending habits and bringing them into line with your income.
Other times, you may need to pursue legal options to reduce and clear your debts.
A licensed insolvency trustee can help substantially reduce (or eliminate) your debts through legal mechanisms such as a consumer proposal or bankruptcy.
Once you file, creditors and debt collectors must stop making calls to obtain payment, reducing the stress you experience.
For many people, it is the first step on the path to financial normality.
Consulting with a professional, therefore, gives you a handle on your situation and plots a path out of it.
It allows you to solve your debt problems and move on with your life.
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