You don’t need a plan to get into debt, but you need one to get out of it. It can take only a couple of big purchases to fall into debt, and anywhere, from a few weeks to decades, to pay it back depending on how large it is. There are other causes of debt besides overspending. The increase in the daily cost of living can push many people into a tight corner where they have to borrow money in order to survive. Stagnant wages or salaries are another contributing factor. Either way, the end result is the same; you fall into debt and you need to come up with a solid plan to get out of it.
The important thing is to do so as quickly as you can, here are some of the possible options that can help you do that.
Earn More Money
Your focus should be on increasing your income rather than lowering your debt. For most people, it’s too difficult, if even possible at all, to pay off their debts based only on the current amount of money they earn. You simply have to start making more money-- whether that means getting a second job or having a side gig that you do on a freelance basis. This could be the time to turn a hobby into a money-making investment. For instance, if you’re a self-taught pianist, you can give piano lessons at your local community center or even from the comfort of your own home. The most important thing is to consider all your options to get more cash. This will get you out of debt much faster than depending solely on what you earn now. At the same time, you have to make sure you don’t increase your debt in any way. Avoiding overspending won’t get you out of debt, but at least it won’t make things worse.
Spend Less Money
Falling in debt doesn’t necessarily mean that you have an overspending problem, your actual problem might be your inability to manage money. In that case, you need to set a reasonable budget and get a clear picture of what your spending habits are. You should know what is taking the biggest chunk out of your income and be able to see which areas you can save on by reducing your expenses. Ideally, you should try to do both; make more money and spend less money.
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Individual Voluntary Arrangement (IVA)
An IVA is a legal agreement between you and an IVA company that allows you to pay back the debt to creditors at an affordable rate. It is usually suitable for individuals who do have a monthly source of income. IVA companies include most types of debts, such as credit card debt, personal loans, utilities, and more.
A common question that people have about IVAs concerns their house and what happens to it if they apply for an IVA. Unlike claiming bankruptcy, you won’t have to lose your home, but in all likelihood, your home will be part of an IVA. The IVA procedures vary from one place to another. For instance, as this URL highlights, you can’t get an IVA in Scotland but you can apply for a Scottish trust deed which is quite similar. However, if you’re a Scot living in England, Northern Island, or Wales, you can apply for an IVA. So before considering this option, check your residing country’s regulations, and be sure to look into the details concerning renting vs ownership or selling your home in the midst of an IVA.
Increase Monthly Payments
Paying off the monthly minimum of your debts can be a painfully slow approach to getting out of debt. Just because there is a minimum payment doesn’t mean you can’t pay more. Start increasing the monthly payments so you don’t wind up paying double or triple what you originally spent. You have two methods you can use. Either you focus on your biggest debts and make the biggest monthly payments on them while making the minimum payments on the smaller debts, or you can completely pay off all your smaller debts first.
Lower Interest Rates
The longer it takes to pay credit card debt, the worse the problem gets. The more you owe, the higher the interest rate you’re charged, which, in turn, further increases your debt. It’s a vicious circle. You could get a card that has a lower interest rate but that can depend on having a good credit score. Having a card that is even just a few points lower on the interest rate can help a great deal in getting you out of debt.
Debt can happen to any of us, so don’t despair. As you can see, there several things that you can do to get out of it. So go ahead and choose the ones that fit your current situation. The most important thing is to tackle your debt problem as soon as it happens to prevent it from snowballing out of control.