Be Debt Free - How To Pay Off Debts Fast
1. Work Out What You Owe
It’s often the small steps that make the biggest difference so rather than viewing debt as mountain breakdown your debts into smaller chunks and work out exactly what you owe. Include any mortgage repayments, credit cards, loans, Hire Purchase Agreements, Car finance, electricity, gas or water arrears, council tax or general tax arrears and any other sums owed to friends and family. Write down your total debt commitments either on paper or using an excel spreadsheet or a personal finance software management package.
2. Calculate Your Minimum Debt Payments and Rank them in Order
Think carefully about the minimum payments that you must make to service each of your debts and avoid getting into trouble with lenders and creditors (those that you owe money to.) List these debts in order starting with the largest debt first and working down the list to the lower debt commitments.
You should now have a clear picture of exactly what debts you owe, the total value of your debt and most importantly the debts in size order.
3. Budget Planning
Budget planning takes time and effort, not to mention commitment but it is essential if you are to pay off your debts fast. Good budget planning will help you to identify poor spending habits and where you can find extra money to pay off your debts more quickly! Go through your monthly finances for the last 3 months. This may take some time and if you have never prepared a budget before I would suggest going through your bank and credit card statements to find out what you have spent and when. Combine this with your list of existing debts and you will have a clear picture of your spending habits. Now spend some time looking for areas that you can make small cut backs. Look for unhelpful spending habits like buying lunch out everyday, daily coffee or chocolate binges and other luxury purchases that can either be removed completely or reduced to perhaps twice a week. For example buying a sandwich everyday for lunch whilst at work could cost you as much as £3.00. Multiply this by 30 days and this is costing £90 per month! Instead consider buying lunch every other day or twice a week and making your own instead.
4. Avoid Paying Off Debt With More Debt
Credit card balance transfers and debt consolidation can seem very tempting but remember that you may simply be delaying debt repayments and not addressing the root issue which is linked your spending habits. Whilst there is nothing wrong with these approaches for individuals who are disciplined to use them wisely they can exacerbate your debt difficulties if you then fail to meet repayments. You should also seek professional financial advice before considering paying off debt with more debt, although in the right context debt consolidation can be especially effective.
5. Claim All Available Government Benefits
Each year billions of pounds goes unclaimed because the general population doesn’t realise that they are entitled to certain benefits. Not all benefits are means tested and you may be entitled to benefits regardless of your income level, without even realising it. For example family tax credits and child benefit are available to those with children under the age of 18. If you are employed but on a lower income level you may be entitled to working tax credits to help top up your income. You are also entitled to income support or incapacity benefit if you are unable to work due to longer term illness. You may also be entitled to council tax discounts and exemptions for a variety of reasons that are not necessarily linked to your income.
Conclusion
By following this step by step process it is highly probable that you can identify negative spending habits that if changed, could provide extra money to pay of your debts fast or by claiming all available benefits find that your debt commitments are reduced due to additional financial help from the government.
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