Abolishing debt can be a slow process, and can take a few courses of treatment before you eliminate the bug altogether! Here are 5 of our top debt-busting tips to help you on your way to debt-free life.
The best way to begin is to take stock of where you stand. This means auditing yourself and your budget. Begin by determining what your monthly debt repayments should be, what interest you are paying on loans, and therefore prioritising which need to be repaid first. For a detailed budgeting start, check out this guide to budgeting from the Money Advice Service.
This can often mean prioritising personal loans with the highest interest first, above any government student loans or similar. But not necessarily: it depends on what your long-term debt reduction goals are. Are you hoping to have one card or debt eliminated ASAP? Then target the lowest balance first. Are you hoping to eliminate interest repayments? Then focus on the highest interest rate debt first. Or, finally, are you aiming to boost your credit score? In that case, focus on credit cards with the highest utilisation – your score is affected by using more than 20% of your available balance. So if you can reduce the utilisation to 20% of the total balance, you will significantly increase your score. It’s all about priorities that work for you.
2. Get rid of sources of debt
This means relinquishing dependence on credit cards in particular. After all, this is all debt. If you’re struggling under the weight of existing debts, accruing new ones will only compound the problems. Get rid of the plastic and stick to debit cards if you can. Read more about going cash-only on Business Insider.
3. Consolidate debts
Transfer debt or consolidate into one place – but exercise caution. If you’re transferring debt from a higher rate credit card to a lower one, for instance, this may be very worthwhile if it means saving a large percentage on interest. But be aware of balance transfer deals: these are often temporary and you should only commit to doing this if you intend to pay off the debt within this period. Once the balance reverts to the higher, standard rate, you will likely only add to your woes. Don’t forget: you are likely to be charged a balance-transfer fee, so take this into account before you make the decision to switch.
4. Investigate loan forgiveness
Discussions with your creditor can be very helpful for figuring out a more accessible repayment schedule. Don’t make life hard for yourself: have the discussion if you are starting to default on repayments. Creditors will often discuss options with you to ensure you have something in place to repay debts in a way that suits you. This may mean holding repayments for a period of time (i.e. pausing your need to repay), or allowing much lower repayments for a time (instead of the full amount).
Sometimes a simple phone call can mean being rewarded with a reduced rate – though this is only possible if you have a history of making repayments on time over a significant period of time. It pays to do your research and offer up competitor’s rates – this may inspire your lender to match a better offer.
5. Make additional minimum repayments
If you can make multiple minimum repayments, this will reduce the amount of interest charged on defaulted repayments in the past. This stops interest compounding as quickly, and will ensure you are debt-free earlier. – interest, after all, is calculated according to how many days unpaid you are. By making more frequent, smaller repayments, the calculation is minimised.
Whatever excess cash you have on hand should go towards eliminating debt. Unfortunately, this might mean going without some fun extras in life for a little while – but it will be worth it. Stop the creeping fear and fatigue of debt taking over your life.
Remember: these are only 5 tips to help you get started. But take into consideration all our advice and you too will be living a debt-free life before you know it. For more information on everything you need to know about your student debt in particular, take a look at Student Money Saver’s guide to repaying your loans. The set-backs and stress are not permanent!