Jump Start Jan 2016: Debt Week Day 2
Welcome back to Day 2 of Debt Week. Are you looking to tackle your debts*, but you don’t know quite where to start? Or maybe you’re scared to get started because that would mean that you really did have a problem? Either way, there is a simple, methodical way to begin to get to grips with your debts.
[*When debt is mentioned in this article, it doesn’t include mortgage debt (unless you’re in arrears with your mortgage) or standard student loans. It mostly refers to other loans, credit cards, informal borrowing and unpaid bills.]
Managing a serious debt takes place in three straightforward phases:
- Putting all the paperwork together to create the full picture
- Preventing debts from getting bigger
- Making a specific, affordable plan to pay off remaining debts
Today we’re going to run through Step 1 – creating a snapshot of the entire debt.
- Set aside some time to fully focus on getting your records together.
- Start to collect up all relevant paperwork, virtual files and web links to terms & conditions etc.
- List all the sources you have borrowed money from: credit cards, store cards, overdraft, payday loans, other loans, and money borrowed formally or informally from friends, partners or family.
- List any bills where you are behind on payments: Council Tax, water rates, gas, electricity, phone, rent, and so on.
- Now go through each item (debt) you’ve listed and make a note of: how much you owe, the interest rate on the borrowing (APR), the term/planned duration of the debt (if any), penalty charges for late payment, and penalty charges for early repayment.
- Rank the debt items in order of urgency, including threats that have been made (bailiffs, court action, extra charges, vital services being cut off, eviction) and debts with the highest APR.
Create a document with all this information in it, and keep it somewhere safe.
Tomorrow we’ll move on to Step 2, which is about preventing debts from getting bigger.
If you’re in debt, is it scary to think about the big picture of what you owe? Getting over the fear and taking a detailed look is a huge step in tackling any debt.