Next up is finding ways to reduce your debt as much as you can so there is less to pay in the long run. This blog is particularly relevant to New Zealand for the finer details but relevant to anyone who has debts.
This is time to take a massive breath, admit where you are to yourself and deal with debt. You might need to deal with some pride – I get that!
The idea here is a two-fold. Number one is to reduce your current debt as much as possible. Number two is to find ways to minimise the amount you pay in the long run on those debts.
Now, number one (reduce that debt!) is obviously within the limits of your debt, the reasons for it, the amount it is (i.e. need to do less for a $100 debt versus $50,000) and other similar things… so take what is relevant and leave the other bits. That’s ok! Some ideas include selling everything that is able to pay off a reasonable portion of that debt, this could even include the car you brought if you can get a much cheaper one that will be really reliable. If you have spare money sitting around for whatever reason (an emergency fund however (emergency, not a new phone because yours is slow!) is a very wise idea!), then this can go on it too.
Number 2 is more complex. It will take some more time, so today, work out what you need to do and then start to find time to do them. Firstly, interest is usually being accumulated on those debts. The first step might be to ring the companies you have debt with and see if there is anything at all that they can do. Sometimes there is, and sometimes there isn’t.
You will need to arrange a payment plan with these – but ask if the interest can be reduced anyhow and just pay the amount due over however much time you need WHILST remembering you have to stay current with that (and all your other) bills. Do your best to avoid the debt going to a debt recovery service so ring as soon as you know you are overdue. Explain the reasons and do everything you can to keep some form of regular repayments up. Debt Recovery Services add’s fees which is one thing you don’t need on top of all this.
Credit Cards and Personal Loans
Ring and see if there’s any amount they can move on the interest rate. But at the same time, consider moving around banks to get 0% interest rates or low ones. I.e. $5000 at 20% is $1000 a year you are paying in interest. You could pay this off the credit card instead. There is the potential option of a consilidation loan if needed, borrowing from a family member (not advised as you don’t want to defaulting on payments to them!) and whatever other options you can think of. Sometimes, it would be a good idea to put it on the mortgage too – but you need to have to commited to step one (get out of it for good!!) first!
Now, this is also the place to consider reducing interest. If you have 55 day interest free period and higher interest rate still, then putting larger purchases you have to make (i.e. carefully budgeted groceries or fuel – you MUST have the money to transfer immediately though!) then this can be a way to reduce the interest you are paying. You will be paying off the lower interest rate first though if you have a credit card transfer before the higher interest rate debt, so DON’T do this if you have a reduced interest rate for some of it. This is also not wise if you feel like you don’t have control of your credit card spending.
Secondly, along these lines… if you withdraw cash from a credit card, there’s frequently a fee AND there’s interest charge from the first day, so do you absolute best to never withdraw cash from a credit card.
Any other ideas that you have? Share your ideas so everyone can benefit and work together on this.We’ll be running this series in November 2016 so if we’ve finished it already, all the links will be in the first overview blog. Pop on over to the mailing list to get a headstart for the budgetting area too! 🙂