10 TIPS TO GET OUT OF CONSUMER DEBT USING THE M.A.N.A.G.E. D.E.B.T. SYSTEM
British and American household debt had reached record levels, despite high employment, low taxes and historically low interest rates.
In the UK, the TUC has called for higher pay rises to solve the problem, but we know that is not always the answer. If you cannot manage small amounts of money, chances are you will not manage larger sums. Unless you change your habits, that par rise or bonus will be blown on more stuff or another holiday before you even receive it.
I cover more on managing money in my book on money, but in the meantime, here is THE M.A.N.A.G.E. D.E.B.T. SYSTEM – 10 TIPS TO GET OUT OF CONSUMER DEBT FOR GOOD:
- M – MAKE A LIST and prioritise debts in order of importance and cost of servicing the debt. Obvious priorities are things like keeping a roof over your head and maintaining power supplies, rather than paying those who are shouting the loudest. Look at the cost of your loans or credit cards and clear the debts with the highest interest rate or repayment. Clearing the high cost debts first will give you breathing space to pay off other debts faster by saving money on interest. Make a plan to start paying off debts and stick to it. Start clearing expensive debts, like credit cards or worse still payday loans, first so that you can reduce the rising tide of compound interest drowning you by increasing your balance faster than you can clear it. List all debts and monthly repayments on a spreadsheet and plan your route to financial freedom. This one step of making a list of your debts will make a huge difference.
- A – AXE NON-ESSENTIAL OUTGOINGS. Go through all your standing orders and direct debits and ruthlessly cut out everything you don’t need, especially things like Sky TV or that membership of the gym you only visit once a month. Exercise at home and find a way to walk more often.
- N – NEVER PAY THE MINIMUM PAYMENT ON A CREDIT CARD. Most people don’t realise that if you just pay the minimum amount required on a credit card it will take years before the debt is paid off. Pay as much as you can and ask the bank to deduct that amount or make extra payments manually to clear the balance faster.
- A – APPLY FOR A BALANCE TRANSFER CARD. Whilst this is a short-term measure, transferring credit card balances from high interest charging companies to 0% cards will give you breathing space. Watch out for the balance transfer fees which can be a high as 3%. Sometimes it can be cheaper in the long run to pay a small interest rates with no balance transfer fees.
- G – GENERATE EXTRA CASH. One of the most obvious ways of reducing your debts is to increase your income. This can be achieved in a number of ways including starting part-time business, working extra hours, qualifying for a pay rise or getting a higher paid job.
- E – ENTITLEMENT TO BENEFITS OR WELFARE SUPPORT. Check if you are entitled to any benefits or tax credits. This especially applies to single parents and people in low paid work. One benefit or tax break could transform your finances overnight. To find out more check on the government website or see your local Citizens Advice if you live in the UK.
- D – DON’T IGNORE BILLS OR DEMANDS. Never ignore a bill, red letter demand and especially from a debt collector, bailiff or court letter. Burying your head in the sand will not make the problem go away and ignoring any of the above will make matters far worse and cost you a whole lot more in the long run with interest and penalties. Ignoring bills and letters will ultimately lead to County Court Judgements and debt defaults which will stay on your record and credit file for up to six years, effectively ruining your credit rating.
- E – ENTER INTO AN ARRANGEMENT. Speak to your creditors if you are having difficulties and consider an arrangement after taking independent advice. There are informal and formal arrangements, such as a debt management plan or IVA. Take independent legal and financial advice from a professional, not just from a salesperson selling a ‘debt clearance’ service.
- B – BE PROACTIVE AND ASK FOR HELP. This could involve talking to your local Citizens Advice office, an independent debt counsellor or even a relative. We all need a little help from time to time and being in debt can be lonely and depressing.
- T – TAKE YOURSELLF OFF CONSUMER DEBT FOR GOOD. Kick the habit. Never borrow to buy expensive consumer items which depreciate in value, and avoid rip-off deals like rent-to-own consumer products like the plague. The old adage of “if you can’t afford it do without it” should be drummed into this modern ‘I want it now’ age! We have become too accustomed to the ‘buy now pay later’ culture of ‘easy credit’, which should be called ‘easy debt’, and keeping up with the joneses, which I mention in my book ‘Yes, Money Can Buy You Happiness’.
MAKE A LIST
AXE NON-ESSENTIAL OUTGOINGS
NEVER PAY THE MINIMUM PAYMENT ON A CREDIT CARD
APPLY FOR A BALANCE TRANSFER CARD
GENERATE EXTRA CASH
ENTITLEMENT TO BENEFITS OR WELFARE SUPPORT
DON’T IGNORE BILLS OR DEMANDS
ENTER INTO AN ARRANGEMENT
BE PROACTIVE AND ASK FOR HELP
TAKE YOURSELLF OFF CONSUMER DEBT FOR GOOD
- Never use expensive payday lenders, unless you have no other choice, and especially unauthorised doorstep lenders will charge you a small fortune interest.
- Start building your credit rating by making repayments on time and clearing credit cards faster. The higher your credit rating, the more access you will have to cheaper finance and the less you will be dependent on expensive credit.
Word of the Day
Individual Voluntary Arrangement
In England and Wales, an individual voluntary arrangement (IVA) is a formal alternative for individuals wishing to avoid bankruptcy.
The IVA was established by and is governed the Insolvency Act 1986 and constitutes a formal repayment proposal presented to a debtor’s creditors via an insolvency practitioner. Usually (but not necessarily), the IVA comprises only the claims of unsecured creditors, leaving the rights of secured creditors largely unchanged. Insolvency practitioners charge initial and ongoing fees that are in addition to the debt.
An IVA is a contractual arrangement with creditors and can be as flexible as an individual’s own circumstances; they can therefore be based on capital, income, third party payments or a combination of these.
In this process, a debtor who has enough money left over after priority creditors and essential expenses, may be able to arrange an individual voluntary arrangement.
Based on taking independent advice, debtors with less serious problems may wish to consider a debt management plan.
The procedure for businesses is the company voluntary arrangement. There is also Administration where the business is effectively run by an appointed administrator. In the US, companies can take advantage of Chapter 11 rules and many companies have come back from this, including some owned by Donald Trump
There are more examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.