Debt: Dealing with debt

Are you facing money problems? Some of the early warning signs are usually very clear and include the following:

• You are completely broke long before payday
• You are missing debt payments
• You are regularly having to borrow from friends and relations just to make ends meet
• You are coming under pressure from lenders
• You money worries are keeping you awake at night

So how did you get to this point? Was it your lifestyle? Are you extravagant? Did you make poor spending decisions? Were you trying to keep up socially? Perhaps you are just not earning enough to fund your lifestyle and obligations. There are so many reasons for money problems but the good news is that it is possible to turn your financial life around. By recognizing and acknowledging the fact that there is indeed a problem, you can start to take the deliberate and necessary steps to address it.
Your attitude to your debt problems can hinder your financial recovery. If your way of dealing with it is to wish it away, remember that inaction will only make things worse. With interest, late payment penalty charges, and the attendant fees and charges you will find that almost all your money goes towards debt service. It is important to get your debt under control and aim to clear or at least reduce it significantly.
Make a list of all your debts
To get a true picture of what you owe, list all your debt - in no particular order at this stage.  You can list them according to size, due dates, interest rates, by whom you owe – it doesn’t really matter. Who do you owe? How much do you owe? What interest rate are you borrowing at? It is important to know how much you debt you owe if you are going to get out of it.
Be sure that you are current with the minimum payments on all your debt. If you are not, contact your creditors to discuss your payments. It may be possible to restructure the debt in a way that enables you repay at amounts you can afford. Staying away will only make things worse and your loans will be called in with dire consequences.
Create a Budget
Track your expenses for a month to determine exactly what comes in and what you are spending it on. Determine how much you need to spend on food, transport, clothing, school fees, entertainment, and set strict spending limits. There is usually some waste lurking in the monthly budget; be realistic and honest with yourself, as you must find a way to cut back. If you can find just that little bit of extra money after budgeting for your essential expenses, then you can use this towards reducing your debt.
Make every effort to stop the bleed. Try not to incur any additional debt. It is tempting to continue to use your card to make more payments but even the smallest payments add up and increase your debt.  Naturally you may have to live below your comfort level for a time and will certainly have to do without some luxuries, but it will be well worth it in the end.
Prioritize your debt
Put your debt in the order in which you want to pay it off. Ideally it should be organized according to interest rate. It makes sense to pay off high interest debt first as this will maximize your debt payments and reduce the amount of overall interest that you pay. Ultimately, the higher the rate, the more you're paying beyond your actual principal. Some people prefer to start by paying off their smallest debt first as this quickly gives a sense of achievement and can provide a significant boost as you systematically pay down your debt.
Bear in mind that the most important debts aren't necessarily the largest. These are the ones where serious action can be taken against you if you don’t pay what you owe, such as rent or mortgage repayments, secured loans and utility bills. If you don't sort these out, you could be disconnected from utilities, have problems with your landlord or even face a repossession of your home.
Make extra payments
As you start to tackle your “priority” debt, you will need to determine how much extra you can afford to pay every month over and above the minimum monthly repayments. If your first debt has a minimum payment of N100,000 per month, and you have freed up N20,000 in your budget for an extra payment, your total payment is N120,000. Continue making minimum payments on your other debts and then move on to the next debt on the priority list. The idea is that every time you pay off some debt, you are in effect “freeing” up some cash to tackle the next one.
Debt has become a necessary part of life for some. When applied properly, it should provide greater opportunities and enhance the quality of life. For others who have borrowed excessively and for the wrong reasons, they could face distressing consequences. With careful planning, and a more disciplined and systematic approach to money management, you can take control of your finances and start to deal with your debt.

  source:moneymatterswithnimi.com