How to get out of debt without ruining your credit score

Discussion in 'Featured Posts of The Find Some Money Blog' started by admin, Jan 11, 2016.

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  1. admin

    admin Administrator Staff Member

    Admin Post
    In The USA more and more families are living beyond their means simply spending money on credit without knowing how they'll eventually pay off the debt. Unfortunately consumer debt in the US and UK are at a all time high and many Government Departments are predicting a rise in the future as out insatiable appetite for excess & instant gratification continues. Fortunately there is a way to climb out of debt however bad it may be without totally ruining your credit score. Many individuals and families who live beyond their means continue to service their debt with more debt because they're afraid they their credit score will deteriorate. Letting debt spiral out of control is the worst step you can take, eventually your credit file will suffer.


    Whether your debt has spiraled out of control or you're at an early stage of debt difficulty there are steps you can take to get your finances on track again. The later you act the more deeper and harder it will be to climb out of debt so take action now by following a few steps to get a handle on your borrowing.

    1: Talk About Your Debt

    Most families avoid taking about money until its too late and as a result financial damage has been done. If your debt is making your anxious and giving your sleepless nights it means that you're in trouble and you need to share your problems with your nearest and dearest. Unfortunately a problem like consumer debt wont go away overnight so eventually everyone will know. Confessing your financial demons will help to eliminate your anxieties so you can focus on getting your debt under control. Talk to your family and explain the financial situation over a family meeting and put in place a plan to tackle and avoid future debt.

    2: Get to Know Your Debt in Order of Importance

    The burden of debt can be terrifying which might explain why most people bury their head in the sand when it comes to knowing about their personal consumer debt. Now that you've exercised your debt demons its time to get to know the devil. Look at each and every one of your debt and make a note of the balance and the interest rate. Spend some time thinking about which debt is secured and unsecured and list them in order of importance. Find out about any fines or penalties that you might be paying so you can avoid these in the future. Once you know what debt is most important you can focus on clearing theses first, this action alone will help to salvage your credit file.

    3: Consolidate Your Debt

    Waking up to a barrage of bills in the post can demotivate the liveliest of people. Having multiple debts can make the whole process of getting a handle on your borrowing that little bit harder which is why consolidating your debt is the answer. If you're credit is still creditworthy you could clear all your credit card bills and other debts and refinance them into a loan which would mean less interest being paid and only one monthly payment to be made which can be automated. This step would boost your credit history because you've managed to get a handle on your debt which is seen as a positive step by credit referencing agencies.

    4: Check Your Credit Cards

    Most nasty consumer debt comes in the form of credit card and letting the debt spiral out of control is very easy. However, you can fight back by shifting the debt to zero percent credit cards. If you've racked up debt over Christmas the chances are you're paying a astronomical rates on your borrowing. You can easily shift this debt to other credit cards which offer zero percent for a minimum of 12 months. Just imagine how much better off you would be by not paying interest and concentrating on paying off your debt instead. Take action and make a few calls to credit card companies and hunt down the lowest rates for the longest period of time.

    5: Slash Your Mortgage or Rental Costs

    Mortgage payments and rental costs are our highest monthly expenses and can account for anything between 50 and 70% of our income. Although interest rates are at an all time low house prices and rents are steadily rising putting additional strain on our personal finances. There are savings to be made and just by switching to a lower rate mortgage deal you can save thousands a year which could go towards clearing your debt. You could also downsize your living quarters and save a bundle which again could be diverted to paying off the excesses of your past.

    6: Save on Energy and Insurance

    There are savings to be made everywhere and if you've racked up a lot of personal debt the chances are you're paying excess for everything. Its time to batten down the hatches and go through all your expenses like energy and insurance and try to save at least 30% across the board. Be cheeky and call your existing provider and ask for a discount or threaten them with their competitors, if they fold that's great and if they call your bluff who cares? just find a better deal. Competition is rife which makes it a market for savers and savvy personal finance specialists can save at least 50% just by haggling and haranging these companies.

    7: Speak to Your Lenders

    You might be at a point where your borrowing expenses cannot be services with your surplus income which means you can no longer service the debt even by making minimum payments. If this is the case don't fret or get into more debt to make up the excess. You should calmly call all the creditors and explain your situation. Fortunately most lenders are sympathetic to borrowers in financial difficulties and can help you by stopping all the interest and reducing your monthly payments for a period of time to help you get back on your feet. There is a chance your credit file could be affected however making a partial interest free payment is better than not making a payment.

    8: Consider a Debt Management Plan

    Help with debt is available in the form of a debt management plan which can be set up by credit counselling services. When your debt is simply beyond management these services can help by freezing the debt and stopping all the interest and making a payment to all the companies on your behalf to clear the debt. You will need to fill out a income and expenses form to show how much surplus income you have and then this payment is made to the Debt Management Plan which makes a pro rata payment to the lenders to clear the debt. Debt Management services can help you to get a handle on debt which is spiraling out of control.

    9: Avoid Bankruptcy

    To have any chance of saving your credit file you need to avoid bankruptcy which should be the absolute last resort. I know people who have taken the bankruptcy route only to find that they have crippled their future in terms of borrowing for a mortgage. Bankruptcy should not be taken lightly and all the above steps and more should be taken to avoid this.

    Sorting out debt is as appetizing as an out of date Big Mac served in a dumpster while getting news of a Hurricane breaking out, but, its something that needs to be tackled head on and the quicker you do something about it the quicker your life can return to normal. Imagine the benefits of being debt free and having the freedom to make choices without considering your debt. Take Action and make this year the year you decide to live within your means and prosper in your personal finances.
    Alistair, Miles and james like this.
  2. james

    james Newbie

    The first step you need to take to eliminate debt I think is to change our internal paradigms. We need to always spend within our means. If we want more material possessions then we must simply put our energies into earning more so we can have all the nice things we want. We also need to suppress our instant gratification needs and impulse because this is what causes us to spend like crazy. Once we've got a handle on all these things we can be debt free over the long run.
    admin, Alistair and Miles like this.
  3. Miles

    Miles Newbie

    I can definitely agree with this. Unfortunately we live in a world where instant gratification is the norm and anyone delaying satisfaction is seen as a douche bag. The only way to completely eliminate debt is to earn 10 times what you are earning at the moment so you never need to be in debt any more.
    admin and Alistair like this.
  4. Miles

    Miles Newbie

    I agree, Bankruptcy is a decision too many people take too lightly because they see it as an easy option to free themselves from debt. Most people always want the easy way out but it eventually comes back to bite them in the backside. So many of my friends are finding it hard to get onto the property ladder because they decided to go bankrupt over debts which were over $10k which is absurd. Anyone reading this thread thinking about bankruptcy should always understand the consequences before they proceed.
    admin and Alistair like this.
  5. Alistair

    Alistair Newbie

    With so much exposure to consume products and service its impossible to control our own cravings to spend and with such easy access to credit this problem will always plaque us. I think the answer is controlling credit and having your finances scrutinized in terms of income and expenses to determine affordability.
    admin likes this.
  6. Alistair

    Alistair Newbie

    Bankruptcy ruined my brothers life and he's no longer in a position to get any financial products like a mortgage. He has to wait the standard 6 years before he can apply for anything which is a bummer because house prices keep on going up and I fear it will be beyond his reach as tighter credit controls become the norm. I agree, think twice before you file for bankruptcy.
    admin likes this.
  7. Alistair

    Alistair Newbie

    We always talk about money over the dinner table. We have conversations about the mortgage rate, how much we're spending and how we can strengthen our personal finances for the future. Our kids who are young always listen keenly to our conversations so hopefully some core financial messages such as spend within your means are getting through.
    admin likes this.
  8. admin

    admin Administrator Staff Member

    Admin Post
    We like doing this too and my son who is 6 is becoming interested in personal finance without even knowing about it. He's started to ask me questions like why do we have a mortgage? and How can we earn more money? which is fantastic because he'll have a strong financial foundation to make good decisions.
  9. admin

    admin Administrator Staff Member

    Admin Post
    Filling for bankruptcy is so easy nowadays and no one attempts to make a last ditch effort to clear their debt because they don't know the consequences. I think one measure that might help is offering a borrower a cooling off period and making them understand the consequences by informing them things like you wont be able to buy a property in the next 5 to 10 years. These measures would definitely reduce the number of people filling for bankruptcy.
  10. admin

    admin Administrator Staff Member

    Admin Post
    I try to turn the TV off or switch channels when an ad is on. I have a rule to spend money I can afford and I never get into debt because I've locked away all my credit cards which makes it harder to spend on impulse. I definitely agree its hard to control instant gratification but it is possible over time.
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Featured Posts of The Find Some Money Blog Can i really get out of debt? i need help to get back on my feet Oct 7, 2015

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