Dealing with debt
One of the most common reasons we see for people needing to sell a property quickly is debt.
We have had a lot of customers who have needed to sell their current property so that they can pay off debts and get themselves financially solvent. The reasons for debt are varied. Job redundancies, zero hour contracts and low wages can all contribute to a person being in debt and struggling to find a way out.
With that in mind this article will give you some useful steps you can take that might help you get out of debt. Everyone’s situation is different so what may apply to one person may not for another. Below are some of the tools and advice to make the best financial decisions from the position you’re currently in. No matter how far you’ve gone there’s always a way back.
Getting an accurate picture
Nobody sets out wanting to get into debt but it happens to millions of people all over the UK, in all walks of life.
It can happen due to changing circumstances such as the loss of a job, spending on credit, rainy day events like roofs that need replacing or uninsured car crashes. It can happen swiftly or as in most cases, bit by bit over the years until it compounds into an amount that’s difficult to manage.
Manageable and unmanageable debt
Not all debt is a problem. Manageable debt can work out if it’s towards a goal and the funds become available to pay it down. Countries in particular commonly run their affairs at a deficit. As long as there are funds flowing in as well as out it can be managed effectively, and paid down over time.
Where the problem comes in is where the debt grows too big, the means to pay it reduces and the monthly payments become harder to pay. This scenario can keep a persons’ finances from recovering. Banks and credit card companies are experts at making money and their finance products like credit cards and loans are designed to primarily work for them. So if you’re struggling with debt you need to know as much as you can about your borrowing, your credit card terms and charges and be aware of all the implications.
Confronting debt
The most important step in dealing with debt is the first one. You need to be honest about the size of your debt and confront it with a plan. A lot of people get into debt and then don’t want to talk about it to anyone. People also hide the truth from themselves because they don’t want to deal with it. Many people don’t like talking about money at all so when it comes to debt it can seem especially difficult to discuss.
It’s smart to take stock of all your debts. Most people with debt will do this in their head but it can be very easy to get the figures wrong when you do that, amounts can be rounded up or down, and it’s much easier for your brain to paint a more positive picture. So if you’re in debt get a spreadsheet and start filling it in. Every single debt should be included on it, don’t leave anything out. If the debt is large it may be difficult to confront it, but it will be for the best in the end.
Include all debts
Include anything that you consider a debt that is outside your normal monthly payments. A mortgage payment, broadband or gas bill shouldn’t be included as these should fall within your normal monthly budgets. It may seem to make more sense to look at all your financial ins and outs as one thing, but separating it into your monthly living budget amount and your outstanding debt amount can help to paint a clearer picture. So if you haven’t already get one sheet of your spreadsheet and fill it in with all of your expenditures that you reasonably need to cover. Things like mortgage payments, food bills, car payments, fuel, clothing etc. Then create another sheet with all of your outstanding debts.
Once you have all debts listed find out the interest that you’re paying on each one monthly, and the monthly payments that are due on each. You’re statements will have that information. This exercise isn’t about figuring out how to repay the debt, it’s simply about seeing the big picture. When you have all the amounts listed, include beside each one the monthly interest calculated and the minimum payment necessary.
If you need to calculate the interest percentages visit percentage calculator.
With this spreadsheet you will be able to see how much you owe in total, as well as how much of your payments may end up lost to interest. You’ll also be able to estimate how long it will take you to pay off the amounts listed. What this should also highlight is that interest payments and only paying the minimum amounts can slow you down in achieving the goal of a debt free life.
Managing payments
There are ways to help bring debts down and get rid of them all together in the long run but this does depend on the size of the debt and individuals circumstances.
If you are in a position where debt has risen to the point that it’s difficult or impossible to get free the Citizens Advice Bureau has some useful advice here.
Balance transfers & 0% interest rates
If your debt is on a credit card or multiple cards then you will have a monthly payment required on each of them. There will also be interest that is charged to your account every month. The interest will be set at a particular rate. The amount charged each month will be the amount on the card divided by the annual percentage rate (APR). So for example if you have £5000 debt and the rate is 12% you would be charged £625 over the course of the year. This would result in £52.08 interest being charged to your account per month.
Another thing to consider is compound interest. In brief this means that the debt you have could keep rising, as the interest you pay gets added to the amount, any future interest will be calculated from the new amount. So if you have a thousand pounds of debt, a 10% rate will charge you £8.33 per month. The next month your interest will be calculated from the new amount that includes the added £8.33.
It’s important to be aware of these mechanisms. Credit card and finance companies are experts at making money so it’s good to know what you’re up against. The best way to bring down credit card debt is to make substantial regular payments that are over the minimum payment amount . If you can’t make substantial payments the next best way is through regular payments with the aid of balance transfers and 0% interest rates. Balance transfers are another way that credit card companies make money, but they also present a way to more easily manage debt, if used correctly.
Balance transfers allow you to transfer a credit card debt from one card to another. This means you can transfer your debt from one card with a high interest rate to another with a zero percent interest rate. E.g. You may be currently paying an interest charge of £50 per month, which is limiting your ability to pay down the debt. If you transfer your debt to a 0% rate then all of your monthly payment will go towards the debt. There is a catch to this though. You will be given the 0% rate for a certain period after which it will increase. Usually a 12-24 month period. There will also be a fee for transferring meaning that it’s not ideal to keep jumping from card to card. It can provide breathing space though and allow you to pay as much as you can during the 0% period.
Personal loans.
A personal loan can work in the same way. The idea is that you are given a loan by a bank at a particular interest rate which you can then use to consolidate, and then pay off your debts. You will then have one payment to pay each month rather than multiple ones, and ideally you will be paying the debt down at a lower interest rate. Consolidating all of your cards into a single card or loan won’t provide you any extra financial aid other than the lower interest rate, but it can certainly help with the mental stress of needing to stay on top of each one separately. It can also make it easier to not miss payments as there’s only one payment to keep on top of.
Making the most of your income and assets
Once you have taken stock of your debt and put steps in place to reduce the monthly payments it is time to look at how you can pay as much off per month as possible. Or in some cases all you may need to do is find a manageable sum you can use each month so that you’re paying down the debt separate from your other regular outgoings.
Spreadsheet everything
The first thing to do is revisit your debts spreadsheet and add another sheet to it. Then add all of your outgoings, from mortgage and car payments to grocery shopping, travel costs, broadband, digital subscriptions and gym memberships.
Use your bank statements to figure out where some of your cash is going to. Often people can end up frittering money away on things like eating out, coffees and unnecessary purchases. Consulting your bank statements can shed some light on where the money goes.
This may seem like too obvious a thing to do but it can help for some people. Once you see how much you’re spending on certain items or activities you can start to reign things in. For example if you buy a coffee every morning before work at £2 per coffee, that will work out at £10 per week or £40 per month. Changing your thinking from buying a £2 a day coffee to your £40 monthly coffee habit can make a big difference in how you view your spending. However, we realise that it’s possible you’ve already reduced costs as much as feasibly possible.
Reduce expenditure
If you haven’t already you may now be able to reduce your outgoings by eliminating any unnecessary expenditures. If you have already cut out all you can it may be time to get rid of or downsize any assets you may have. If you have manageable monthly payments that are being paid down regularly then you may be able to skip this bit.
A house and car are for many people everyday essentials. A car can be expensive once you factor in petrol, insurance, MOT, repairs, parking and road tax, as well as the actual price of the car. If you’re in the country it’s difficult to do without a car but it can be much easier in the city. Make sure to put down all the expenditure that running a car involves and you will have to weigh up whether it’s worth it financially and feasible to get rid of it or if it’s a better idea to trade down to a smaller one. Is it possible to cycle or walk to work?
Where you live is obviously another big one. If your debt issue has been caused due to being laid off and you’re a property owner selling your house may be the obvious thing to do. As most peoples’ biggest asset, a property sale can in some cases allow you to release any equity contained within and pay down debts. Downsizing where you live is one of the best ways that you can make a substantial reduction in your monthly outgoings, leading to higher debt repayments and getting you out from under it sooner.
Food banks
Food banks have become a social necessity that have sprung over the last 20 years. There are many families that use food banks to help them get by.
Assign budgets, and use cash
Another way to find more money for debt payments is to use the outgoings spreadsheet you’ve created to assign a monthly budget for you to follow. Include everything you spend money on from the biggest to the smallest items. Give yourself a budget for weekly groceries, things like weekly work lunches. Some people find it easier to stick to budgets by using either contactless card payments or by using cash. Using cash can work if you take out the amount you need at the start of the month or week. You will then be able to see how much you have left if you go over budget and spend accordingly for the rest of the week. Some people can fritter more money away when they deal with cash so pick what’s best for you.
The last item on our list is one to stay away from. Payday lenders. If you haven’t used them before don’t start now. They are an expensive way of borrowing money and should be avoided. In desperate situations they can look like a good idea but the high fees can just lead to you getting into more debt.
For more information on how to avoid them, and how to possibly get refunded visit Money Saving Expert.
Useful links
With these strategies you may be able to help yourself out of a debt situation. However debt can be a multi-faceted situation with very particular circumstances. So for more advice on these matters see the following links.
How FastBuy Properties can help?
We will buy your property in any condition. We have helped hundreds of homeowners to sell their property, and we can help you too.
