It comes in many forms, sometimes it’s one great mountain, looming ominously before you, other times it’s a field of tiny thorns, with no obvious way to cross. Either way if you are looking to change debt can feel like an impenetrable wall, standing in your way.
But fear not! We can scale it! I was not the first nor, will I be the last to do so. There are numerous strategies for conquering, some of which are outlined in my recommendation last post, but what lies ahead are the tools and strategies that I used to manage my debt, leave work and pursue full time study.
First things first, a quick disclaimer, I am not a financial professional, I make no money from this post or any things I suggest and you should seek advice before jumping into any financial decisions.
With that out of the way, its time to:
Identify your debts.
The largest debts most of us have is a mortgage. But this isn’t the debt we are trying to tackle here. Mortgages are attached to real estate, a generally useful asset that can be a solid long term investment to hold. What we want to take on is the bad stuff, the stuff a lot of us regret. We are talking personal and car loans, credit cards and payday loans (gulp).
Now once you’ve got them all lined up, if you haven’t already, you need to find out how much you owe and what fees you are paying.
It’s time to start climbing! We are going to start with the easiest step, and for everyone this is different, and that is whatever debt has the SMALLEST balance.
This is because the smallest is the quickest to pay off, and the quickest debt you can start paying ZERO interest on,
And for a lot of people that debt is:
Payday Loans (booooooo!)
Payday loans are one of the worst lines of credit you can take out. With absurdly high interest rates and equally high approval rates these are nothing short of a trap. Though I never fell victim, a few close to me did and one individual ended up in a vicious cycle of requiring a fresh payday loan, every payday. Now on the bright side, these loans tend to be the lowest balance of any loan you may have. However with by far the highest interest rate of all they, they are the most important to pay off. Now that means we are doing whatever it takes. Empty your savings, sell your camera, work any overtime you can. This is the only time I will suggest this to get a loan down. Payday loans provide quick isntant cash, pay them off the same way. Sorry I know you love that handbag, and yes play stations are fun.
For the uninitiated here’s a few places to sell stuff quick:
Now with the grapple firmly in place and the first holds secured, its time to keep scaling.
It’s time to deal with:
That juicy bit of plastic that almost everyone’s wallet contains, there is no doubting how prolific these are. Now credit cards do have there place in life, mortgage offsets, rewards schemes for the financially disciplined etc., but that’s not us, if it was we wouldn’t hanging on this wall together, would we?
Now as with all debts, you need to identify the smallest and simply start paying it down as fast as possible. Simple?
It really is, though we aren’t quite done here. It’s time to pickup the phone again and start calling your credit card providers. The goal here is to negotiate your rates down as low as possible and having them waive whatever fees you can. This is possible and I did it, if your having trouble with what to say The Barefoot Investor provides some handy scripts in his book.
Lastly lets touch on balance transfers. These should only be considered if you have built solid financial habits and are well disciplined. Though they can offer a great deal of savings if not paid of on time they can be more expensive. They also are a band-aid fix, rather than building a great habit and eliminating debt you are simply delaying it.
For those interested in a great card I would suggest what I use, the St. George Vertigo Platinum. This is merely a suggestion it is best you do your own research and select a card that is best for you, I do not receive any money for my suggestions or advertisements. My suggestions are purely for your benefit!
Whoa, don’t look down we are long way up. The top is within our grasp, we have just one major hurdle to overcome.
The Car Loan
There is no doubting cars can be a vital item to your life, we use them for all manner of things including making money, or taking us to the place that makes money. However when we look at what a car loan is doing for you it can make you sick.
Your car is depreciating, as in it is constantly losing value.
While the cost of purchasing it is being charge compound interest, as in its constantly going up.
That’s right the price of your car is constantly moving in the opposite direction of its value. So its time to get cracking.
As with credit cards you need to call your lender and negotiate the lowest rate and fees you can. They will almost certainly provide some wriggle room especially if you can convince them you wont be able to pay otherwise.
Now with that temporary relief in place, there are only four real options for getting out of a car loan, all of them require a payout figure from your lender so make sure you get that.
1. Pay it in full
If you have the savings or can source the money to do so this is an option for you, though realistically not most people. If this is an option for you simple go ahead and follow the instructions as provided by your lender.
2. Pay it off over time
As simple as it sounds just keep paying your repayments for the full term. It may not be what you want to hear but it is one of your only options, if you aren’t willing to part with your vehicle.
3. Sell your car
The outcome of this depends on how much you get, as all proceeds will need to paid to the lender. If it’s enough to cover your payout, you’re off the hook! But, given what we said before about depreciation, you will probably be left with a shortfall, and you will need to repay this. Though there is generally a lot of room for negotiating repayments on the shortfall.
4. Voluntary Repossession
Now it sounds worse than it actually is. How it works is, you return the vehicle to the lender, they sell it on your behalf. You are still responsible for any shortfall. This is the route I took and I was able to negotiate a very low repayment for this, have the interest frozen at 0% and so long as I continued to pay on time it did not impact my credit rating.
Car loans can be large and messy but there is always room to negotiate and they do come with some options that make them easier and better to deal with than other debt.
Hopefully these tools I used to conquer my debt can help you do the same. It is important for to remember that there are no easy ways out, anyone who is offering one is probably not looking out for your best interests. This includes debt consolidation loans, these may seem like a great solution but they remove the ability to pay off small chunks of debt and reduce interest to 0%.
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Remember you can do this! And if your still not convinced stick with us, we will be posting another money matters soon! Next time focused on cost of living and this will be another tool you can use to help manage debt too!
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