How to Manage When Living with Debt

Debt problems go hand in hand with anxiety, and living with the stress of debt can affect every part of life; work, relationships, even mental health – not just finances. What’s often overlooked is how best to manage when you’re in debt and trying to pay it off. No matter how bad your own personal relationship with debt is, the good news is that with some patience and (most importantly) perseverance it’s absolutely possible to become debt free, and there are ways to better manage your finances during this tricky period. Here are a few tips to help manage when living with debt.

Focus on the Now

In debt management you have to focus on the present, and try not to let your anxiety take over. It’s important to take everything one step at a time. To get in the right financial state, you first need to get in the right mental state. It’s easy to get caught up worrying about what might happen, how much you owe or how to manage monthly repayments, but you really must try and stay present, taking it one day at a time. The same goes when it comes to thinking about the past. Try not to regret your debt and what decisions may have lead you to it. The best way to manage debt is first to accept that you are in debt. There may be a million things you could have done differently to avoid the situation you’re in, but it’s much better to concentrate on what you can do starting now. Once you’ve faced up to your debt you’re in a much stronger position to be able to manage it. Consider mindfulness to help you stay in the now via apps such as Headspace.

Understand your Position

Before you make a budget, you need to know your finances inside out so that you know exactly what you’re dealing with. Know how your debt works – the interest it’s earning, and if it will increase or decrease and if you have more than one credit card which has the highest interest rates.  It’s possible not to be aware of all the debt you owe, so make sure start by obtaining all the information about your financial situation, remembering to keep track of everything. This, much like the budget, will give you some control and enable you to make an informed repayment plan – such as paying off the debts with the highest interest rates first. Start first with the card incurring the most interest, and focus on paying that one off first, while maintaining the minimum repayments on any others. Ideally, it’s best to start with the lesser amount, as you’ll be able to pay it off quicker which will motivate you to continue and make you feel positive with a ‘one down’ mentality.

Understand your Options

You’re in debt, and since this isn’t – unfortunately – reversible the only option you have is to move forward, starting by assessing any options available to you which might make things easier. Depending on the severity of your situation, your options could be to check to see if you could be paying less interest, registering for a repayment plan or  – worst case scenario – file for bankruptcy. If you’re worried about meeting next month’s minimum payment then do speak with your creditors, as they will be more sympathetic if you contact them beforehand and may be able to help. Although they do come with a charge, look into whether there are any good balance transfer deals around, as you may be able to transfer some if not all of your debt onto a 0% interest credit card to help you focus on paying off your debt without the added pressure of interest (do note though that most 0% deals will run out at some point so be sure to be clear when that is and ideally look for one with the longest duration). However, ensure that you fully understand the implications involved and that your credit rating may be a risk.  Beware that it’s not advisable to file for bankruptcy unless absolutely necessary as it will prohibit you financially.

Make a Budget, and Stick to it

Budgets are important, especially when you have a limited amount of funds to live on and the pressures of debt. In making a budget, you’ll know exactly how much you’re needing to pay each month in minimum payments as well as any non-negotiable expenses such as rent or bills. Once you’ve worked these out you can then calculate how much you have left, working how much you need to live on (frugally), using the rest to pay off your highest interest credit card or loan. Making and committing to a budget gives you some much-needed control over your finances, and without which it’s far harder to manage let alone actually pay off debt. It might not be fun, but it’s an important that while you’re living with debt you manage what money you have coming in effectively, and live as frugally as you can while you balance paying minimal repayments with actually paying off your debt. Think of the relief you’ll feel once you’re debt free – something that can only be achieved if you’re prepared to make sacrifices in the meantime.

Make Some Changes

Forget about the lifestyle you led before, or even the lifestyle that might have got you into debt in the first place. As we’ve already mentioned, being in debt means making sacrifices. You must cut down on your spending if you hope to manage during this difficult time. Face the reality and commit to living a quieter life while you struggle to pay what you owe. Trying to keep up with the way you were living before the debt will only make things harder and potentially lead to more debt. Although it feels restrictive, you may need to give up the monthly new clothes, pricey weekend brunches or daily coffee on the way to work. Take public transportation to save money. Do cooking at home, planning a week’s menu in advance so that you’re able to shop cost effectively, and save the money you would have used eating out. Ask friends if they would mind coming over for dinner or coffee, rather than going out like you might have done before. Utilize any opportunity where you live has to socialise for free – look for free exhibitions, or if you’re lucky enough to live in or near countryside embrace the great outdoors and go on walks or hikes instead. You’d be surprised how much joy can be felt enjoying simpler things. For those that live alone, you might even want to consider getting a roommate and share the rent among other expenses. If you own your home and live near parents, depending if they’re willing to help you while you manage your debt consider renting it out on Air B&B and staying at theirs while your house or flat is occupied. Be resourceful and do whatever it takes to minimise your outgoings and maximise the amount you’re contributing to debt repayment.

Start Making Money to Get You Out of Debt

Consider whether there is anyway of increasing your earnings, so that you have more to contribute to repaying the debt you owe. Not only will this be hugely beneficial in actually eliminating your debt, but it will make things far easier while you’re living with debt. It could be selling anything valuable on sites such as Ebay, or taking on a freelance or part-time job alongside your current job. Depending on how much you earn, investing is one of the best options you have to increase your finances. However, this shouldn’t be undertaken lightly and is not the best solution for everyone in debt. It should only be considered by those who earn a reliable salary and don’t have financial struggles, aside from debt repayment. Go for long term investment plans that are more likely to guarantee a reliable profit, even if they don’t provide short term gain. Look as it as an investment in your debt repayment – it may take a little while but if done correctly could enable you a sum of money to if not clear your debt, considerably chip away at it. However, only ever invest with a small amount, and don’t put your money in short term, risky schemes. Look for a reputable brokerage firm such as CMC Markets that offers a free trial, or seek advice of an independant financial advisor.