Battlefield How to Fight with Your Debts ...

1. The Basic Steps

Mindset, analysis, consolidation, and saving are the four key steps to fighting your debts. The very first step is to create the right mindset and stick to that mindset. You can only fight your debts when you are willing to face the truth, and shying away like you have a phobia is not going to get you anywhere. A good way to stay focused is to have your goals and your battle plans clear in your mind, with a list of them written down so you can refer to them whenever things get really tough. You also need to have the conviction to keep yourself in the long-term, not just the first couple of weeks or months.

The first goal is to avoid taking on any new debts whatsoever and to consolidate existing debts if possible. No more credit card spending, no more loans or deferred payments on retail purchases. If you need to you should destroy your credit cards and statements to make it impossible for you to spend with them.

2. Communicate with Others

A problem shared is a problem halved, and while talking to someone about your debts might not actually half your debts, it will always help you feel better and more able to cope. It is easier to meet your obligations and reach your goals if you share them with someone else. You can even have someone you know act as an instigator – someone who enforces the rules, helps you stick to your obligations, and ultimately keeps you on your toes.

3. Debt Analysis

Some debts will be more damaging to you than others, and this means you will need to analyze and prioritize your debts accordingly. Which of your debts are secured and which of your debts are unsecured? Secured debts are by far the most important as they can put your collateral at risk, which will often be your home.

Once you have all of your debts accounted for, arrange two lists; one with your accounts listed from the highest interest rate to the lowest interest rate, and one with your account listed from the highest outstanding balance to the lowest outstanding balance.

4. Top down or Bottom up?

There are two ways to tackle debt; paying balances starting with the lowest outstanding balances, or paying debts off starting with the highest interest rates. For the first method, you should pay the minimum payment for all the debts you have, and pay extra towards debts with the lowest balance, gradually eliminating the smaller debts and then moving on and paying extra for the larger debts. The other method is similar with minimum payments made on all debts, but with extra payments made to the debts with the highest amount of interest applied. If your debt is mainly credit card debt, the second option is the most effective.

5. Debt Consolidation

If you have significant and widespread debts, you should research what possible options are available for debt consolidation with debt management and settlement companies.

There are many different options available, including interest rate arbitration, debt management, and settlement, or filing for bankruptcy in severe cases: Arbitration and management reduce the interest you are paying but are really just a way of turning one unmanageable debt into another, longer-term debt that is more manageable. For significant personal debts, debt management and arbitration are there to waive portions of interest, remove certain fees, simplify your repayments and avoid bankruptcy. Bankruptcy official removes all your debts, but puts you in a very bad position for future lending – this choice should only be considered for business debts and not personal debts.

For homeowners, remortgaging can provide extra financial freedom to pay debts, but will make it longer to pay off the mortgage and will reduce your available capital in the future.

These methods are aimed at reducing and eliminating your debt, but none of them are failsafe methods and none of them are guaranteed to work. They can also come with disadvantages. Debt write-offs and bankruptcy will have a big effect on your credit score for example, and professional fees may apply. The only management option you have for secured debts is to file bankruptcy.

6. Strategies for Credit Card Accounts

Consumer credit often accounts are high interest debt, and these are often the most important to address and reduce. Do your best to pay more than the minimum payment each month – for higher balances the minimum payment mostly goes on paying the interest and not on paying down the balance itself. Even if you just make an extra small payment each month on top of the minimum payment, you will lower your finance charges and speed up the repayment process significantly.

Applying for a new credit card purely to make a balance transfer can be a very good idea if you are able, as long as you do not use the card under any circumstances for purchases. Once you have made the transfer, destroy the card just like every other credit card you might have destroyed.