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Personal debt can hold you back from achieving many of your financial goals. For example, if you want to grow your wealth, you are likely considering investment opportunities. However, outstanding debt drains your financial resources, giving you less to work with. Also, certain debts cost more than you might earn in your investment, meaning that you still end up losing money in the long term.
The best way to handle outstanding debt is to pay it off as quickly as possible. This gives you a better foundation to build your wealth and secure your financial future. Here are some ways to get you back into the black.
Create a Plan
It’s been said that if you fail to plan, you plan to fail. Every project needs a plan, including your financial projects.
If you have a goal to reduce or eliminate debt, first check the damage. Inspect your finances, work out your income and expenses over about a year. This gives you a better idea of what you earn and spend on average.
If you earn more than you spend, great. If not, you need to focus on cutting down on your expenses.
This is where a budget comes into play. Create a budget that includes your essential bills. Cut down on non-essential expenses like subscriptions, but still give yourself a reasonable amount to play with. This keeps your budget realistic yet frugal. Then put as much as possible into your debt.
Debt Repayment Methods
In short, the sooner you pay your debt, the better. Minimum repayments are designed to keep you in debt longer and drain your funds through interest.
One method is to get a consolidation loan. This allows you to put all of your debt into one loan that’s easy to repay. This is ideal if you’re able to get a low-interest loan, because you eliminate things like credit card debt.
Otherwise, focus your debt repayments using a snowball approach. Pay off the smallest or most pricey debts first and foremost, paying the minimum amount on everything else. Then, once that debt is eliminated, move onto the next one.
Avoid taking on other debts during this time. This is especially true for credit cards and payday loans, as they can quickly eat away at your income if left unpaid.
Dealing With Difficult Creditors
Ideally, debt repayment should be a civilized affair. But this isn’t always the case. If you have had trouble paying your debts, you might get called into court. Or, in some cases, creditors are overly aggressive or unfair, making it harder for you to pay your debts without harassment.
In both of these cases, you would benefit from a debt defense attorney. A lawyer can ensure that you get fair treatment and room to repay your debt at a pace that works for you. If you do end up in court, a case might end in a repayment plan. A lawyer will help you get a more favourable plan.
