If there is one thing that would come as a big relief to most people is how to get rid of their debt. This is one area that is giving people sleepless nights, and mental anguish. Getting rid of debt is one the hardest things to do, and accomplishing this task is one of the greatest achievements in one’s life. I don’t want to sound as is this is an easy job, but it can be done if you follow the steps explained clearly by K D Garrow in the following article on how to get rid of debt permanently.
We are all in debt to some extent, but problems arise when we are unable to keep up with repayments. This is an increasingly common situation but the good news is that however bad your debt crisis is you can almost certainly get rid of it yourself with a little advice and guidance.
Not By Borrowing Or Spending More Money
If you are experiencing debt problems and you surf the net to find help, you will be bombarded by websites offering to solve all your problems. Unfortunately the vast majority of the websites you will find are only offering solutions by commercial companies, designed to generate income for them. That is why the only solutions you will normally come across are consolidation loans, secured loans, Debt Management Plans and Individual Voluntary Arrangements. All of these will cost you money and make money for the organisations providing them.
If you think about it logically, how likely is it that the solution to owing too much money is going to be borrowing more money, or paying more money to someone for their services? It is far more likely that such action will either make your long-term situation worse, or at least result in it taking longer than it should to get rid of your debt. If you are fortunate enough to find one of the few sources of unbiased debt help out there (advice from someone who isn’t trying to sell you something), you will see that the real solution to debt problems is always the same, and never involves borrowing or spending more money.
Follow These Simple Steps
Nothing is going to magically make your debts disappear. Bankruptcy may result in writing off some unpaid debts, but it is a drastic step to take, with all sorts of long-term consequences. There is a fairly straightforward way of dealing with any debt crisis, which just requires some understanding of the steps to take and a little organisation on your part. Only by dealing with debt in this way will you actually take back control of your finances for yourself, and reduce the likelihood of such a situation recurring in the future.
The basic procedure is to make sure your creditors understand your situation, then take steps to reach agreements with them all to pay back only what you really can afford. The steps you go through in order to achieve this are set out below.
Contact Your Creditors
You can’t expect any sympathy or understanding from the people you owe money to, unless they are aware of your situation. You must write to them all to explain your situation, and assure them that you are trying to deal with it. Tell them exactly why you are in the situation you are in, which could be something specific such as redundancy to marriage breakdown, or just that you allowed your debts to build out of control. You should also ask each creditor to confirm all the details of exactly what you owe them, so that you have an accurate and up to date idea of each debt. Templates you can use to draft creditors letters are available online.
Prioritize Your Creditors
When you have a clear idea of each creditor and what money you owe, the next thing you need to do is to split your creditors into two groups. This exercise is about deciding which creditors are the most important ones to deal with. Each of your creditors must fall into one of two groups – Priority Creditors or Secondary Creditors.
Your priority creditors are the ones where there are potentially serious consequences if you do not repay them. Examples might include your mortgage or a loan secured on your home, unpaid income tax, child maintenance or council tax. These are all areas where non-payment can result in actions such as losing your home, imprisonment or having your assets seized by bailiffs. Your secondary creditors are basically everything else. Secondary debts might include unsecured loans, credit card debts, bank overdraft or money owed to catalogues.
Create A Financial Statement
You are going to be trying to negotiate settlements with your creditors soon, and you will not be able to do this effectively unless you can show them clearly how much money you have and what you can afford to pay. You therefore need to create a Personal Financial Statement, which is basically just a detailed list showing all your income each month, and all the things you have to pay out each month.
You can print off a Personal Financial Statement Form online to help make sure you don’t miss anything off. You will need to decide whether you break it down into weekly or monthly figures, but stick to either one of the other. At this stage you should only include your priority creditors on your financial statement, leaving off all your secondary debtors. Do remember to include any other essential living costs, however, such as vehicle or travel costs, insurances, etc.
Remember to be realistic and accurate with your figures, as all your creditors are going to be looking at and checking these. Your financial statement should show you what (if anything) you have left each month after paying your priority creditors. This is the amount you have to share among your secondary creditors.
Make Offers To Your Creditors
This is the all important stage that your other work has been leading up to. You now need to contact your creditors to make offers, and negotiate repayments that are within your ability to pay. Contact your priority creditors first, to make an offer of payment towards any arrears you have accumulated. Do this by starting with the most serious debt first (serious in terms of the consequences of not paying, not how much you owe). Don’t offer all your spare income as you need to share it out. Include a copy of your financial statement with your letter. As you get an agreement for each creditor, build that into your financial statement and keep updating it.
You then need to start negotiating with your secondary creditors. It is worth trying to see if they will write the debt off to start with, especially if your financial statement demonstrates that you have no spare income. Assuming you do have some spare income after dealing with your priority creditors, the fairest thing to do is to share it out proportionately between your secondary creditors. This means sharing out your money in proportion to the amount of money owed, rather than giving the same amount to everyone, irrespective of the size of the debt. Help is available online with how to work this out. Bearing in mind that all your creditors will see your financial statement and therefore know what you are paying other people, this system of sharing it out is by far the easiest to defend and justify.
That is basically it as far as the main approach to dealing with any debt is concerned. Clearly there is more detail around these various steps, but that is beyond the scope of this article, which is just intended to provide you with the main outline approach. I hope this helps to show that any debt can be tackled most effectively by dealing with it directly yourself, rather than perpetuating the cycle of debt by borrowing more money.