Debt is a problem that many Brits struggle with. In fact, data published by Statista shows that UK household debt has more than twice as much as it was 20 years ago.
If you’re dealing with debt, you need to address it as soon as you can. It’s a problem that only gets worse the longer you leave it, as interest rates compound over time. And right now,interest rates are climbing, further complicating the issue.
In this article, we’ll explain how debt affects you and how you can get out of debt.
How does debt affect you?
Carrying debt can have several negative effects on you, including the following.
• Poor mental health
According to a survey conducted by Money and Mental Health, roughly 50% of people with debt problems experience difficulties with mental health. Debt can make you feel anxious, which affects your sleep in turn. You can easily find yourself in a negative spiral, with the anxiety and lack of sleep feeding off each other and making life unbearable.
• Lower credit score
When you carry debt for long periods, they cut down your credit score. With a bad credit score, lenders see you as more of a risk and are less likely to approve your loan applications. This makes it harder for you to access financial help at times when you need it, like when trying to take out a mortgage.
• Future challenges
Achieving a comfortable retirement is a challenge at the best of times. Debts make it even more difficult to attain this goal,weighing you down and holding you back no matter how hard you work. That’s why it’s important to get rid of your interest debts while you’re still young.
How can you get out of debt?
The exact way you get out of debt depends on your personal needs and circumstances. That being said, there are some general steps you can follow.
1) Create a budget
A budget lets you know exactly how much money you have available. List out all your regular monthly expenses, then subtract the total from your salary. This gives your disposable income – the amount of money you can use to off your debts.
2) Choose a strategy
There are several debt-clearing tactics you can employ:
• Debt consolidation – A debt consolidation loan brings together multiple debts into a single, more-manageablemonthly payment, making it easier for you to track and make your monthly payments on time.
• Snowball method – Tackle your debts from of smallest to largest amount, gaining momentum by rolling the minimum payment of the debts you pay off onto the next.
• Avalanche method – Pay off your debts from largest to smallest interest rate, paying less interest over the long term and getting out of debt quickly.
Regardless of which method you choose, ensure you always make the minimum payments for all debts so they don’t pile up.
3) Minimise your expenses
The bigger your expenses are, the less chances you have to clear your debts or even stop your debts from growing. On the other hand, having extra cash can help you clear your debts faster.
So, try to cut down on spending however you can. This could be something as simple as choosing cheaper brands or cancelling subscriptions you don’t use. Analyse your spending and search for simple ways you can save.
Being in debt has serious effects on your mental health, freedom and future. But by following the steps above, you can go a long way towards improving your financial situation.Which strategy could best help you get out of debt?