Getting Out Of Debt - Part I
If you're beleaguered with a number of irritating debts, now's the time to kick-start your mission to pay them off.
At the end of this month, you may find that you've saved a bit of extra money from somewhere without perhaps realising why. It's your Council Tax. February and March are 'free' months because Council Tax is usually paid in instalments over 10 months.If you've got debts, this is a prime opportunity to use those spare funds to kick-start a campaign to get shot of them. So, how do you go about doing it?The problem is that there is no 'one size fits all' solution to debt problems. That side, we can use two broad categories -- manageable and unmanageable. This article deals with manageable debts, Part 2 looks at truly terrifying unmanageable borrowings.The positive thing about manageable debt is that you are likely to be in a position to take advantage of better deals and to make a few cutbacks. Then you can make overpayments and get rid of the debts more quickly.The first step is to find out exactly where all your money is going each month and, to my mind, that means doing rather more than using your bank statements to tot up your outgoings. Statements are useful for checking how much you're forking out for your mortgage/rent and various household bills, but it's equally important to know where the money you withdrew from the hole in the wall went. How much variable spending are you doing when you go shopping -- particularly grocery shopping?Keeping a spending diary for a month is the best way to find this out. It'll tell you how much you're spending on the 'small stuff' such as magazines, sandwiches, takeaways, buying rounds in the pub, etc. Unless you are pretty good at keeping your wallet or purse firmly shut on most occasions, you'll probably be quite surprised at how much you spend on the 'small stuff', and it'll be obvious where you can make savings.Next, make a list of all your debts with a note of the annual interest rate you're being charged. If the interest rate is in double figures, then you stand a good chance of shifting those debts to a lender offering a better deal. The idea is to pay as little interest as possible so that more of your money is going towards paying down the actual debt. So, look at shifting credit card debts to those offering low or 0% introductory deals but read the small print so you are aware of potential pitfalls.Shop around for better deals for your household bills such as your mortgage, utlities, and insurance and make the effort to switch them to cheaper companies.By then you should be able to see how much extra money you've got to put towards your debts. Although you may want to start off with the smallest debts first because of the psychological impact of paying them off one by one, your best bet is to throw as much of your spare money at the most expensive debt first ie: the one with the highest interest rate.When that debt has gone, start paying off the next most expensive debt etc. Ultimately, this creates a snowball effect ensuring that your debts get paid off more and more quickly because you're freeing up more and more money to throw at them.And when you're debt-free, make sure you don't go back to your bad old ways. Use your spare money to save up for the things you really want to buy rather than borrowing it!Learn more about how to Get Out Of Debt