“Easily in but not easily out, as the lobster said in the lobster pot.”
~ Narnian saying
Debt. It’s easy to get into it – but getting out again is often a very different matter. I’ve put down some thoughts on handling debt and avoiding some of the most common pitfalls. I hope you find them useful.
1) Do keep a budget
First off, do keep a budget. How can you keep on top of your finances when you don’t know where you stand with them? It doesn’t have to be exhaustive, but keeping an eye on your income and your spending is the obvious way of tracking your money and – if/when it’s necessary – figuring out where and how you should make cutbacks.
2) Don’t make just the minimum payments
A pretty obvious one, based on pretty basic logic: the way interest works means a debt will grow over time, so the less time you carry a debt, the less time it’ll have to grow. OK, we can’t all afford to overpay by as much as we’d like to, but however much extra you can afford to put towards your credit card each month will make a difference. Keep it up and you could be surprised how much of a difference it makes in the long run (figuring out the best-case and worst-case scenarios can really help you make the effort each month, so print them out and keep the figures with your paperwork).
3) Do talk to your lenders when you have to
If you’re in trouble financially, don’t keep it to yourself! You might not like the idea of telling your lenders about your money worries, but there’s no way they can help you if they don’t know you can’t afford your payments! You might be surprised at how willing they are to help you repay what you owe at a rate you can actually afford.
4) Don’t ignore small problems
Small problems can become big problems if you don’t sort them out in time. Today’s minor money worries can turn into tomorrow’s financial nightmare, so you need to face up to your problems before they have the chance to get any worse, or in the worst-case scenario, you might end up looking at bankruptcy. That’s something that can work very differently depending on where you live – you might find this article quite good at explaining how it can work.
5) Do review your budget regularly
OK, it sounds like we’re back to point 1, but there’s an important point here. Things change over time, so why would you expect last year’s budget to be relevant this year? Your income might have gone up or down, and so might your heating bills, food bills, rent / mortgage, etc. etc. etc. So, go back to your budget at least once a year and make sure it’s up to date. The less disposable income you have on a monthly basis, the more important it is to do this, as even a small change could make a major difference to your financial health.
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