You awaited the holidays with keen anticipation and enjoyed them thoroughly too, however, now at the end of the first month of the New Year, all that remains is your debt, maybe even somewhat blown up with all the card swipes for holiday and gifting goodies purchases. The real extent of your debt may perhaps not really be apparent to you as the credit card bills reflecting your excesses wouldn’t have arrived as yet, however you can be sure that it wouldn’t be a pretty sight.
However terrible your debt situation might be, the start of the New Year is perhaps the best time to make a resolution to get your financial situation back on track. One of the reasons why this time around it is even more critical is because experts are of the opinion that the cost of living will see an upward climb this year making savings even more difficult than before. Some essential tips on debt control:
Make a Budget
The budget, as any expert on personal finance will observe, is the most basic and vital step in taking control over your debt. Preparing a budget permits you to find out the heads on which you spend your monthly income, and to establish if you have a surplus, or like many people if you are living way out of your means simply by taking on increasing amounts of debt. You can take steps to increase your surplus by cutting down unnecessary expenses such as dining, entertainment and travel.
Set Goals
Now that you have perhaps managed to shock yourself with the assessment of your finances, it is necessary for you to set goals and make plans for achieving them. It is generally helpful to have a major reward for yourself to aim towards so that you have an incentive to wipe off your debt as fast as possible. This could be an exotic vacation that you always wanted or even a music system or a car that you had fancied for long. However, the principal goal must always be to get rid of the debt by specifically-defined dates so that you can move ahead with a more carefree life.
Make a Plan
Making plans for effectively managing your debt does not mean that you just set up mechanisms for timely payment of your monthly dues but actually setting up a firm deadline by which the debt is paid off together with specific and practical measures for achieving that goal. Since your financial circumstances are different from anybody else’s, you need to have plans specific to your needs. For example, if you have credit cards that charge really high rates of interest (19-28%), you should focus on retiring them first. The biggest mistake that most people tend to make is to assume that all credit cards are the same and it is good enough to make only the minimum payments each month on all of them. If you do the math, you will discover that it can take 12 years and four months to pay back $10,000 if the interest rate is 15% by making only the minimum payment. However, it will take only one year and 3 months, if in addition to the minimum amount due; you pay $250 every month.
Restructure Your Debt
It can become far easier to pay off credit card debt if you engage in a credit card debt consolidation exercise. This essentially means that you need to identify a card that offers you a balance transfer facility at zero percent interest rate and sweep all your credit card balances into this new card. Effectively, you no longer have to monitor the other card statements and make multiple payments every month but only make a single payment each month. This method works best if the entire credit card balance can be repaid in the period in which no interest is charged; typically this is between 12-18 months. However, if this period is not enough you will need to undertake a similar exercise once the interest-free period is up, but every time you do so, you will need to pay the balance transfer fee, which is usually around 3% of the amount transferred. If you have personal loans, education loans or other loans that you are finding difficult to repay, then you need to consider a consolidation loan from a private lender.
Conclusion
Getting back on track after running up a huge debt is never an easy task. You need to set yourself specific and achievable goals, make plans that are practical as well as make major changes in your lifestyle to that you are able to save more and even seek additional sources of income to generate surpluses that can be used to wipe off the debt.