One of the excellent decisions you can make is being free from debts. Fortunately, there are many ways you can get out of debt and prevent costly blunders, but the question is: are you ready to make appropriate commitments?
Reducing your credit card debts isn’t the only way to get out of debt; it entails altering your spending patterns, understanding how to budget, prioritising obligations, setting aside emergency and retirement savings, and knowing where to turn for help if you go off track.
This guide will share some insights into some of the most common errors people make when getting out of debt.
5 Negative Ways of Coming Out of Debt
1. Dipping Into Retirement Savings
It’s always recommended that you start saving and investing as soon as you start working.
That said, people who have taken this piece of advice positively and have been building their capital since they stepped into employment are doing good and should continue the positive gesture.
However, most people still find themselves settling off outstanding debt with retirement funds (which, of course, is a no-no), and it might throw your overall financial strategy off track.
2. Taking Advantage Of Your Home Equity
If you’re in debt and have a property, you may decide to refinance your property or obtain a new loan at a higher interest rate than the original loan or work on debt collection negotiation.
For example, if your property value is £30,000,000 and you owe your lender £23,000,000, you may refinance to £25,000,000 and retain £2,000,000 in cash. This is to consider your home equity a temporary lifesaver, but in reality, you will be exposing yourself to more problems.
With this approach, you’re more likely to lose your property if a financial crisis disrupts your initial plan, making refinancing to settle off unsecured debt a bad idea.
Trading one loan for another may only be appropriate if you want to change your EMI or take advantage of a reduced interest rate.
3. Shifting Balance To A New Credit Card
Transferring balances is another example of a debt exchange, which many believe can help free debts. A credit card company may entice you with reduced rates, only to realise that such rates are designed to attract borrowers for a limited period.
Furthermore, there is always a processing charge of 1 to 2 percent of the total amount transferred to your new card. Whenever you get a check from your new card provider to repay the loan, you could think you are debt-free, which isn’t the case.
4. Obtaining Funds From Relatives Or Friends
You could have a loving and supportive family or friends you can rely on for almost everything in life. But keep in mind that financial issues can make even the kindest people go wild.
While relatives and friends can be there for you in every moment, many times, they may just disappoint you. Learn to stand on your own, and you’ll find it easier managing your finances rather than getting out from one debt going into another.
5. Filling For Settlement
You may have tried everything, but nothing else appears to be working to settle your loan or credit card debt. While the bank can approve debt settlement, this will never mean you’re out of debt—the sum you’ll pay will still appear in your credit report.
The settled loan or credit card debt will influence your credit scores for seven years and stay on your credit record, making it hard to get any loan in the future. Besides, no bank would voluntarily issue you a loan if you had already settled your loan or credit card debts.
Best Ways to Get Out of Debt
Now that you know some of the bad ways to get out of debt, let’s look at some of the best ways you can get out of debt:
Check your budget: To get out of debt, you have to be responsible for your finances. Talk to your partner about your budgeting programme, and let your family members know about your debt payment plans and let them be part of the repayment programme.
Avoid Further Borrowing: One critical step to getting off debts is avoiding additional loans. First, comprehend the cost of using a credit card and pulling out different loans. The most basic adjustment you must change is your attitude.
Understand How You Spend: It might be tough to decide where to make reasonable budgeting adjustments if you don’t have a complete view of what you purchase and how you spend.
It’s a good idea to record all of your monthly expenses and your daily expenditures. Please ensure you add your loan repayment commitment when putting down your monthly records.
Consolidate your loan: Perhaps you are going through financial hiccups and have no idea where to get support to pay off your debts. In this case, you can consider consolidation debt services or Debt Management at reformdebtsolutions.co.uk to help you out—but you must be careful when going for this option.
Bottom Line
You must find a better way to keep you off the debt trap than shortcut tricks that never work. If you have accumulated a mountain of debt, adopt a realistic approach and sell assets or investments to repay your debts. If that isn’t a better option, consider taking on more part-time jobs to boost your income.
