How to Pay off Your Credit Cards and Loans
Credit Card Debt
If your loan repayments have gotten out of control and you are stressed out by debt collectors and legal letters then follow this step-by-step guide.
I'll show you how to write a financial plan to get out of debt. I'll also show you how to manage your repayments to the credit card and loan companies.
Do not ignore your debts. They will not go away
It saps your positive energy because when you think about money it is only with worry and stress. As the debts mount up so does the interest and late payment charges, then your debts become out of control.
It becomes impossible for you to meet the agreed repayments and you are in financial trouble
It will get to the stage where you will be afraid to open the letters, answer the phone or even go outside your front door because of the debt collectors. Take control of your debts by facing up to your financial difficulties and take control of your life.
Every country is different in the way they deal with people who have found themselves with these money problems. But as a universal rule, if you ignore your money problems they will only get worse.
Existing unpaid loans will get bigger with more interest added. This only causes more stress to you and affects your health. If you are brought to court the expense of this will be added to your debt. In most countries, the court will look at your financial situation. If it sees you are genuinely in financial difficulty, it will order you to repay a manageable amount each month.
But beware if you fail in this order for any reason then you will be jailed for contempt of court. The credit card debt will still be there when you are released.
So What Can you Do?
Make a list of everything you owe. Include all the credit cards, loans and other financial institutions you owe money to. By taking this first step you have made a decision to accept responsibility for your debts. You can now face up to the reality of the situation. Write down exactly how much you owe to each.
Add it all up. Yes, it will be a shock, but this is the first step in taking back control of your life. I now want you to work out how much it costs you a month to service these loans. Look at the high-interest charges and see how much it is costing you.
Or if you have gotten to the stage that you can not even pay the interest, look how much extra this is putting on top of that debt every week.
How Much Money Do You Owe?
You now know exactly how much money you owe. That is the first step. You have accepted you need to take control of the situation.
Make a list of all your monthly expenses. These will be the necessary ones to enable you to survive.
Monthly Rent or Mortgage
If you are in danger of losing your home, you must contact your mortgage broker immediately and try to come to a workable arrangement.
The banks can be reasonable and can come to an agreement of either a three-month gap or a twelve-month interest only repayment.
This applies to a rental property too, do not let the rent go unpaid. Contact the landlord and try to come up with a repayment plan for the arrears.
Your next priority is your monthly food and utility bills. If you have children also include any necessary expenses they incur on this list.
Write down everything that comes into the household starting with wages from anyone working. If unemployed add your social security payments and any vouchers.
If you earn money from any part-time business and it is guaranteed then include this too. If you are not sure how much income can be earned every month then leave this out. You need to know exactly how much money you can commit to repayments
Getting Out of Debt
Most people will get a shock when they read these figures. Now you have four columns.
- What money you owe.
- How much you should be paying back a month.
- What money you need to survive on for the month
- What money you have available to you monthly.
Take the amount of money you have for your monthly expenses away from the amount of money you have coming into the house.
What you have left is what you can afford to pay back to your creditors. Most people in a lot of debt are going to see an enormous difference in these two figures.
Here's an Example.
You owe $70,000. Your monthly debt repayments come to $2,370. Your monthly income comes to $3,000. Your monthly expenses come to $2,000.
You only have $1,000 a month to meet a commitment of $2,370 a month.
Pay Back What You Can
Go back to your list of all the financial institutions you owe money to. Put the highest amount of money you owe on the top of the list and work down.
We will work from the example above. You know you can only afford to repay $1000 a month so work off that figure. Decide how much you are going to offer each creditor.
Proposed New Repayment
Phone Your Creditors
Now you phone the first creditor on your list and explain the situation. Ask them to agree to the lower payments. If it is a credit card company also ask them would they consider stopping the interest and late and missed payment charges.
You are guaranteed that the person on the other end of the phone is going to try to persuade you to increase your offer a little. Stay firm but polite and tell them if they accept your lower payment offer they are at least guaranteed that amount because you know you can afford it.
Statement of Means Form
Work down the list. You may get someone who is rude and does not want to negotiate. There is not much you can do about that. Most will ask you to fill in a Statement of Means form and give proof of your earnings or Social Welfare benefits.
Most will allow you to email this to them and some will ask you to post it. Once you have contacted everyone on your list, make sure you keep a copy of what was agreed for each one.
Most creditors are glad to get some payment from you. Once they see you are genuinely unable to repay the debt as previously agreed they will accept the new arrangement.
Brought to Court
If a creditor brings you to court, it is up to the Judge to decide how much you are capable of repaying. Once you have been honest it will usually be a smaller amount than you offered.
Creditors are aware of this and only bring people to court who they know will not pay back the debt as opposed to those who are unable to make the repayments.
It is not nice having to go to court. But sometimes this is necessary because one of your creditors has been unreasonable. You will get through it. You have nothing to fear.
Yes, you are responsible for the debt, but you have accepted this and have offered an amount of money that is reasonable in your current situation. Once you are honest the Judge will see this.
Paying off Debts
The debt is still there but you have taken control of it by negotiating lower payments on your reduced income.
You no longer have this dread every day you wake up and remember all the repayments that are due that you know you can not meet.
You can finally clear your mind of the negative energy that has been surrounding you every day as you thought of money.
You have your life under control and now it is time to change the energy around your thoughts of money to a positive frequency. This will have the effect of attracting money into your life
The official government website links from a few countries that will give you advice on the best way of paying off debts are here on this page.
Links to Websites that will Help You Pay off Credit Card Debt
- Credit Counseling Services | USA.gov
This page explains options for getting out of debt, including considering the services of a credit counseling service.
- Free Independent advice UK Gov
The Money Advice Service helps you manage your money better. Use our Health Check tool, calculators and comparison tables to make the most of your finances
- Debt advice Ireland Gov
Personal insolvency options
- Personal finance advice - australia.gov.au