To be confronted by the spectre of multiple debts that all require repayment can be extremely stressful. However, there is no need to run for the hills, debts can be ordered and prioritised, making repayments manageable and saving you money in the long-run.
The first set of repayments to address is referred to as 'priority debts'. To identify these, look at any financial obligations that, if left unmet, could have a drastic effect on your circumstances. This may include mortgage repayments or rent arrears, where non-payment could cause repossession or eviction. Similarly, sums unpaid on council tax could have serious consequences, as you may be declared bankrupt with all its associated problems and stigma. Also check whether you have repayments to make on hire purchase loans for items that are fundamental to the daily function of your or your family. For example, non-payment of a hire purchase loan for your car could cause ructions if it was confiscated and you were reliant on it to get to work.
Once you have identified your main debt priorities, in terms of how they could impact your lifestyle, it is then paramount to assess which debts are costing you the most. This generally means looking at the APR rather than the amount borrowed, as a high APR will cost you the most in the long run. High rate debts to look out for are store cards, (often as high as 30% APR) and it is also advisable to check the overdraft rate on your bank account, since this can be costly if you continue to remain in the red. These debts maybe unsecured, i.e. they won't confiscate your house if you fail to repay, but they can still result in an unwelcome appearance at the County Court. Repaying obligations such as a student loan may appear to be more fundamental than paying off a store card, but this type of loan is intended to be long-term and hence has a very low APR. Therefore, continue making the minimum repayments required until you are free from the more crushing terms of the store card style debt.
Research whether it is feasible to move debts on a high APR credit card or store card to a credit card that is either interest free or has a very low APR. This will greatly reduce the amount of money you will lose in interest repayments. If you are being hit by large overdraft fees it may make sense for you to swap to a current account, which, although earning minimal interest, usually have far lower overdraft rates and fees. To give yourself some much needed mental encouragement, if you have a number of small debts outstanding, it is fine to make some one off payments to remove them from your list. This will hopefully motivate you to tackle your more thorny financial obligations.
After this, it is generally believed that 'snowballing' is the best approach to paying off debts. This means beginning with your most critical debt and concentrating your energies on paying it off. Ensure you have sufficient money to continue minimum repayments on your other liabilities but otherwise focus your financial resources into this one debt. Once repaid, you should then move onto the next debt on your critical list. This is more effective than trying to pay off an equal amount on each debt due to the 'snowball' factor: clearing a single debt at a time then frees up more cash to focus on the next, ad infinitum. Remember, if you are feeling overwhelmed by your financial situation there are several debt advice charities that can assist, for example, the independent Money Advice Service.
The first set of repayments to address is referred to as 'priority debts'. To identify these, look at any financial obligations that, if left unmet, could have a drastic effect on your circumstances. This may include mortgage repayments or rent arrears, where non-payment could cause repossession or eviction. Similarly, sums unpaid on council tax could have serious consequences, as you may be declared bankrupt with all its associated problems and stigma. Also check whether you have repayments to make on hire purchase loans for items that are fundamental to the daily function of your or your family. For example, non-payment of a hire purchase loan for your car could cause ructions if it was confiscated and you were reliant on it to get to work.
Once you have identified your main debt priorities, in terms of how they could impact your lifestyle, it is then paramount to assess which debts are costing you the most. This generally means looking at the APR rather than the amount borrowed, as a high APR will cost you the most in the long run. High rate debts to look out for are store cards, (often as high as 30% APR) and it is also advisable to check the overdraft rate on your bank account, since this can be costly if you continue to remain in the red. These debts maybe unsecured, i.e. they won't confiscate your house if you fail to repay, but they can still result in an unwelcome appearance at the County Court. Repaying obligations such as a student loan may appear to be more fundamental than paying off a store card, but this type of loan is intended to be long-term and hence has a very low APR. Therefore, continue making the minimum repayments required until you are free from the more crushing terms of the store card style debt.
Research whether it is feasible to move debts on a high APR credit card or store card to a credit card that is either interest free or has a very low APR. This will greatly reduce the amount of money you will lose in interest repayments. If you are being hit by large overdraft fees it may make sense for you to swap to a current account, which, although earning minimal interest, usually have far lower overdraft rates and fees. To give yourself some much needed mental encouragement, if you have a number of small debts outstanding, it is fine to make some one off payments to remove them from your list. This will hopefully motivate you to tackle your more thorny financial obligations.
After this, it is generally believed that 'snowballing' is the best approach to paying off debts. This means beginning with your most critical debt and concentrating your energies on paying it off. Ensure you have sufficient money to continue minimum repayments on your other liabilities but otherwise focus your financial resources into this one debt. Once repaid, you should then move onto the next debt on your critical list. This is more effective than trying to pay off an equal amount on each debt due to the 'snowball' factor: clearing a single debt at a time then frees up more cash to focus on the next, ad infinitum. Remember, if you are feeling overwhelmed by your financial situation there are several debt advice charities that can assist, for example, the independent Money Advice Service.
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