Managing debt is not as easy as it sounds. But to ease your stress, you should start acting on defusing your debt in the coming year. Here’s how you can actually achieve your debt pay-off resolution in 2020.
Debt is the inevitable reality of our lives. While debt itself isn’t bad, things go south when you don’t handle it responsibly. A lot of us take out multiple debts to finance our homes and cars. But what matters is how well you manage to repay these debts. But that’s not the kind of debt that would give you stressful, sleepless nights. If you find yourself needing a loan frequently, it may be a sign of a debt problem, which needs your urgent attention.
Getting rid of debt is like shedding weight – both require your perseverance. Have you, too, resolved to make 2021 a debt-free year? If you have, you’ve landed on the right page!
In this article, we’ll discuss how to successfully achieve your debt pay-off resolution.
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Representative Example: £12,000 over 66 months, 31.9% APR fixed. Monthly payment £358.22 Annual interest rate 28.01% fixed. Interest payable £11,642.52. Total repayable £23,642.52.
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Norwich Trust
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Representative Example: £12,000 over 66 months, 31.9% APR fixed. Monthly payment £358.22 Annual interest rate 28.01% fixed. Interest payable £11,642.52. Total repayable £23,642.52.
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Representative Example: Loan Amount: £20950.00, Loan Term: 85 Months, Interest Rate: 23.00% PA Variable. Monthly Repayments: £537.44. Total Amount Repayable: £45,682.15. This example includes a Product Fee of £2,095.00 (10% of the loan amount) and a Lending Fee of £714.00
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Representative Example: Borrowing £3000 over 36 months with a representative APR of 39.9% (variable),the amount payable would be £134.21 a month,with a total cost of credit of £1831.56 and a total amount payable of £4831.56.
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Representative Example: Borrowing £3000 over 36 months with a representative APR of 39.9% (variable),the amount payable would be £134.21 a month,with a total cost of credit of £1831.56 and a total amount payable of £4831.56.
Debt pay-off: Managed debt Vs Debt problem
Once you’ve resolved to bid adieu to your debt, the next step should be to understand the type of debt you’ll have to deal with. Are you dealing with a managed or unmanaged debt? Here’s what you need to know:
Managed debt
Managed debt is the debt whose purpose you can define categorically. A mortgage or a car loan could make great examples of managed debt. Ideally, these are debts that you repay over fixed monthly instalments, which wouldn’t surpass your annual income. Most lenders would assess your income and creditworthiness before lending such loans. Generally, any debt that you repay responsibly, that helps you build assets, can be categorized as managed debt. They are designed to help spread the costs across a set period.
However, if you start relying on your credit card to bridge your financial gaps when you overspend, it might be a debt problem. Things can slide out of hand very quickly when you start overusing your credit card.
Debt problem – unmanaged debt
If the total amount of money that you owe exceeds your annual income, it could be a sign of a debt problem. Additionally, if your debt is unmanaged, you won’t be able to justify it. If you can’t account for a debt that you’re struggling to repay, seek professional advice. Being in denial about your debt problem will only worsen your situation. Battling with debt seriously affects your mental wellbeing. Not only will a debt problem damage your credit score, but you might also land a CCJ if the lender resorts to the court. This will hamper your chances of securing a loan in the future. Thus, addressing the problem and taking professional financial advice will help you get on the path to defusing debt.
3 keys to fulfilling your debt pay-off resolution
A year is quite a long time for things to get into action. A new job, a new hobby, or a new debt? What you do with the next year is on you. Maybe you can finally use 2021 as an opportunity to defuse your debt.
A lot of us feel pumped every year to put our debt to rest. If you’ve resolved to pay off your debt in the New Year, boost your chances of success. Do your homework to come up with a smart strategy that’ll work for you. If you’re a motivation driven person, focus on what drives your debt pay-off goal and set realistic targets accordingly.
Here are some tips to help you achieve your resolution of defusing debt in 2021:
- Lay the foundation for your success: Before you set out on your debt pay-off journey, lay the cornerstone that’ll push you closer to your aim. We know setting up a clear budget right at the beginning of the year can be difficult, so set up a rough budget. Seep through your bank statements to assess your monthly incomings and outgoings. Now jot down all your debts, their balance, monthly repayments, repayment dates, and interest rates. A lot of people underrate budgeting, while some lose track of their expenses. A budget helps you be true to yourself. And while you make your budget, don’t just focus on debt. Start your debt pay-off once you saved enough to get you through a rough patch. If you hastily use all your money to pay off debts, the first unexpected expense can put you off track. So, to get out of debt, you need to have some savings to fall back on. Check what you’re left with once you’ve covered the necessary expenses, savings, and ongoing repayments. That’s the money you could use to expedite your debt repayment.
- Make a realistic, achievable resolution: After a careful evaluation of your finances, create a goal or different milestones that align with your circumstances. It is important to analyse what drives you to pay off your debt. Instead of stressing about the lump sum that you owe, focus on the small amounts that you can afford to pay each month. This will facilitate your journey towards the end goal – successful debt pay-off. For instance, if you’ve got a credit card debt of £10000, you will certainly find it difficult to repay. But, if you’re able to pay off £600 a month towards your debt, you’ll still be able to repay £7200 over a year. Getting rid of the entire debt in a year may not be a realistic goal for us all. But you have to be practical about it. Setting unrealistic timelines will only make you lose hope and feel frustrated if you fail. So, don’t follow a ‘one size fits all’ approach for your debt pay-off strategy.
- Act on what you’ve planned: The final step in the making of a successful debt-free resolution, is acting on what you planned. Motivation is the greatest driver of all. So, identify in what ways your debt is holding you back. Once you have an answer, you’ll see a clearer picture. Now, all you need to do is find out which debt repayment strategy works best for you. Below are two of the most common methods that people use to pay off debt:
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- Debt Consolidation: Debt consolidation helps you organize multiple debts into a single, comprehensive loan. When you opt for a personal loan to consolidate your debt, the loan pays off your entire outstanding debt. Now, you’ll only be left with one deb to pay off. Most people use 0% balance transfer cards to do this. Balance transfer cards are available at 0% APR in the initial period. If you’re able to pay off the balance within this promotional period, all of your money will go towards your debt, not the interest.
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- Debt Snowball: The debt snowball method is when you pay off your smallest debts first. Herein, you’ll focus your money towards paying off the smallest debt balances. You will still have to pay off a minimum on the rest of your debt. Just like a snowball rolls downhill, once the first debt is over, then you start paying towards the next one. This method works best for people who’re driven by quick wins and want to stay motivated to stick to your debt pay-off goal.
Conclusion
Regardless of what method you choose to achieve your debt pay-off resolution, you must stay motivated in the direction. Automating your payments can be a good way to start. The less effort you’ll have to put into repaying, the easier it will be to reach a milestone. Plus, when you switch to direct debit, you’ll have no choice but to pay off the money. Finding a motivation to drive your debt pay-off resolution is crucial to achieving your goal.
