People who are in deep debt may feel trapped. There is a stage when everything in their financial life seems to be just feeding the mounting debt. Fees, late-payment penalties, etc don’t let any payment make a dent in the growing debt. This can be frustrating, but giving up on the attempt to fix the problem may only aggravate the situation and let it spiral out of control.
If you’re in a situation where you feel that your debt is growing and you’re not able to at least see the way to pay it off, you need to stop immediately and figure a plan to avoid a personal financial crash. This plan may involve more than just trying to save to pay off every months because your outstanding debt may be growing at a faster pace than any savings you can accumulate. That is why it is important that you follow these four steps to ensure that your finances will eventually get back on track.
Define the problem
As with anything in life, the first step toward solving a problem is finding the cause. Your debt probably didn’t grow out of control overnight. That is why you need to find out what actions have led to this situation. Have you taken a personal loan for a major purchase and haven’t been able to pay it down as planned? Do your life expenses like rent, tuition, transportation add up to an amount that exceed your income and push you to rely on debt? Although defining the problem won’t remove your debt, it may help you find way to immediately plug any drain in your spending and prevent even a larger debt from forming.
Get help
If you’re living outside your means and you’re using debt to pay off debt, you need help. See a financial adviser or at least visit your bank to come up with a debt-restructuring plan that enables you to take charge again of your financial situation. It may seem a luxury to spend money on getting advice at this stage, but if the alternative of doing it yourself didn’t work out for you, you may have no choice.
Your goal should be first to keep your debt from exploding and set a plan to pay it off. Your bank or financial adviser won’t work have a magic wand, although they can show you the way, it is your determination that will get you there.
Pay it down
Paying your debt off at once may not be possible, but you may be able to come up with a chunk of cash — from selling a valuable item like stocks or property — to bring it down to where your monthly payment can be affordable. This a big decision because you will be digging into your savings or investments. But again the point is to make sure that your commitment to eliminate your debt works out.
While you do this, you always will need to through any extra cash — even if it is a small amount — against your debt. Just like you accumulated your debt over time, eliminating it can become easier if you just make it your goal to pay it down as quickly as possible. Cancel that expensive vacation or that new television purchase and pay as much as you can against your credit cards, personal loans, etc. Remember, the lower the debt you’re carrying, the less interest you’ll be adding up every single month.
Don’t take any more debt
It sounds like a no-brainer. But how could you that? Back to the first step, figure out why you’ve been dragged to credit. If your lifestyle isn’t within your means, you may need to make some unpopular decisions and downgrade to where you’re financially comfortable. If you only had an emergency in the past that tipped your financials out of balance, you may be relieved to know that your financials are an exception that can be handled with sound financial planning and a strong will.
Regardless, don’t take any more debt — unless it is an absolute emergency, of course. After you figure out how to pay your debt off and get back on your feet, you should apply the learned lessons to your future borrowing to make sure that any debt is within your ability to repay.
Rania Oteify, a former Gulf News Business Featured Editor, is a Seattle-based editor.
