5 Essential Tips For Managing Debt Effectively
Let's face it 2020 has been an absolute shit storm for a lot of people. As we finally start to see some much-needed light in 2021, we are now facing the stark reality of mounting debts and job uncertainty. This is why I want to share five effective tips for managing debt effectively.
Stop Burying Your Head In The Sand
The hardest thing for many people experiencing financial trouble and mounting debt is actually admitting they have a problem. Another loan or credit card is all well and good, but that money will need to be paid back sooner or later. For some people, that time has already come, and they are now faced with the prospect of not being able to make those payments.
Unfortunately, I don't have a magic wand or a means to make things disappear, but I know from first-hand experience how to control the situation. Once you can do the same, you will be able to gain some clarity, reduce stress, and hopefully stop making more bad decisions.
Being in debt and having money worries is one thing. But being in debt and not being in control is a whole different ball game. Burying your head in the sand (or bottle) is a one-way ticket to increased stress, poor sleep and bad decision making. All these things combined are a recipe for disaster.
5 Essential Tips For Managing Debt Effectively
1 - Speak with your bank or credit card company ASAP
I know this might seem like a no-brainer, but for many people, it's the last thing you want to do. However, you'll be surprised just how helpful they can be. In the early 80s, when the UK entered into a deep recession, banks and credit card companies were ruthless in their pursuit of people who were struggling to make their repayments. This resulted in a spike in suicides attributed to the strong-arm tactics undertaken by the financial institutions.
This came to the attention of the mainstream media and was addressed by several prominent politicians. New policies were introduced and rules to which all financial institutions had to adhere to. Since then, specialist debt departments have been introduced in all high street banks, building societies, and credit card companies. Many of them will offer repayment holidays and reduced minimum payments, which will give you some well-needed breathing space.
Considering we are in the middle of a global pandemic, I would imagine they are even more understanding than ever. If not, politely advise them that you will make an official complaint, and that should get them off your back.
2 - Review & reduce your outgoings ASAP
It seems like another no-brainer, but you would be surprised just how much money is spunked on things you don't need. Sky TV, for example. Do you really need all 767 channels? Maybe swap your supermarket for a cheaper alternative. When I was faced with financial difficulties back in 2015, switching Waitrose for Lidle was a massive kick in the bollocks. But after the pain subsided, I found myself cutting my weekly food bill in half.
Another considerable saving I still make to this day is on my mobile phone bill. I used to have a package with Vodaphone that cost me £70 a month. I cancelled that and opted for a pay as you go £20 big bundle package, which I still have to this day.
The hardest thing is getting used to a slightly different way of life. But I can assure you that tightening your belt and reigning your spending in is far less of a ballache than having bailiffs turn up at your door.
You will be surprised at how much money can be saved by making minor adjustments to your lifestyle - gym, car, monthly subscriptions, supermarket, toiletries, Starbucks etc. Remember, it's only temporarily!
3 - Resist additional borrowing
Borrowing additional money without a game plan is only going to get you further into debt. Before you even consider this option, you have to ask yourself how you will pay it back. Borrowing money and hoping something miraculously will change is no different from playing the lottery or sticking a wager on down the bookies.
The offer of another loan or credit card might sound like a good idea but let me tell you now, spending 20k is much easier than repaying 20k. If you're highly stressed and feel like you're treading water or that time is running out. I would first review your outgoings, speak with your existing creditors and then take a long hard look in the mirror and work out a clear plan of action before you even consider borrowing more money. I know people who fell on hard times in the last recession and built up so much debt between 2008 & 2010 (2 years), and they have only just finished paying it off a decade later.
4 - Be honest with yourself
Can you survive in the direction you're heading? Are you living a lifestyle that aligns with your current financial predicament? What do the next 3, 6, 12 months look like?
Wishful thinking in life and business is a sure-fire way of landing yourself in serious shit. Always plan for the worst-case scenario. That way, you will always be prepared for the worst, and anything less will be a bonus.
Burying your head in the sand and reaching for the bottle is not going to help either. You need to take a long hard look in the mirror and ask yourself if you're living a lifestyle that will best equip you in dealing with the problems you currently face.
In 2015 I fell flat on my arse and didn't have a pot to piss in. I was drinking heavily, overweight, and my head was in a terrible place. I made bad decision after bad decesion. After a massive wake up call, I got my head out of my arse and implemented some effective daily habits. Within three months, I was in a much better position. Don't get me wrong, I was still in a shit load of debt, but I was in a position to effectively manage my finances and start to put some plans in place and build for the future.
5 - Be aware that Step Change does NOT offer impartial advice
My last piece of advice may come as a surprise to some people. Speak with any bank, credit card or loan company, and they will all refer you to a "free" debt advisory service called Step Change. They are a registered charity that provides "free" and impartial advice to people struggling with debt. However, Step Change does NOT offer you impartial and honest advice.
Step Change will almost always advise you to enter into an (IVA) individual voluntary arrangement, regardless of whether or not it's the best option for you. Step Change advises you to take this route because their revenue model is based on getting a kickback from the creditors you owe money to. Once you enter into the IVA, a percentage of the money you repay is paid to Step Change in the form of a commission.
They make hundreds of thousands of pounds a month by advising the people struggling with debt to enter into an IVA when in many cases, you would be best off managing the debt yourself or looking at alternative options.
Remember the old saying, "if something seems too good to be true, it probably is."
This video will explain things in more detail
The Truth About StepChange Debt Charity
DISCLAIMER - I guess I best cover my back and mention that I am not offering financial advice. Nor am I qualified to provide financial advice. That said, all of the advice I have given comes from vast personal experience. So some might say I am extremely well-positioned to offer such advice. Either way, I advise everyone to do their own due diligence when making any financial decisions.
Damian King
