Modern Debt Solutions: An Ultimate Guide

We all work hard to make the money we need to give our families a good life, but there are times when it just isn’t possible to make our money stretch. 2020 was a tough year for so many families and individuals with so many people losing their jobs due to the Covid-19 Pandemic. Debt levels have risen across the world and many people are now worried about how they are going to pay it back. High-interest rates on credit cards and loans can often make the debt seem like quicksand as the harder you try to escape, the more you end up getting pulled back in. With the new year here, it would be great if everyone could use 2021 to get themselves debt-free.

To lend a hand to everyone who needs a little help, here is the ultimate guide to modern debt solutions.

1. Clear Your Debts

The first thing you need to do before making any changes to how you handle your finances to avoid future debt is to reduce any debt that you already have. These trusted professionals explain that one way to do this is by signing up for an individual voluntary arrangement (IVA). This is a legal agreement that you sign with the people you owe money to which binds you to repay a set amount every month. This agreement lasts for five years after which any outstanding debts are written off and your creditors are not able to chase you or try to prosecute you for the rest. You could end up saving a huge amount of money in debt repayment with an IVA with some people managing to write off more than 75% of their total debts. 

2. A Well-Planned Budget

Writing a well-planned budget is an excellent way to ensure that your money stretches as far as it needs to every month. The main difference between two people who earn the same amount of money, one of which manages to save each month and the other being in debt, is often how good they are at budgeting. An effective budget will include your mortgage or rent, your car payments, gas and electricity bills, grocery expenses, and everything else which costs money each month. Try and put aside 10-15% each month for a vacation or an emergency so that you are always financially stable.

3. Advance Payments

Many people who are already in debt end up pushing themselves further into debt by buying things they can’t afford. They may do those by making purchases on credit cards, or they may buy things in installments. The problem with this is that you end up paying more than the item actually retails for with money that you don’t actually have. Always pay for everything you need to buy as and when you buy it. If you have an emergency like your washing machine dying, and you need to buy a new one, then, of course, you can break this rule. If you do, just make sure you factor the monthly payments for the new washing machine into your budget.

4. Conscious Savings

One reason why a detailed budget is so useful is that it shows you where you can easily make savings. When you are first writing your budget, look back at the last three months, and make a list of all your expenses under headings like “Grocery Bills” and “Eating Out”. When you see the expenses written down in black and white, you may be shocked at how much of your money you spend on certain things. This will help you to become more conscientious when shopping or planning a night out, so you can become conscious of the money you are wasting. Set yourself a savings goal like a new car or a family vacation and aim to pay for it by making savings in every area where you are currently overspending.

5. Avoid Impulse Purchases

One excellent way to save money which you are currently wasting is to plan exactly what you are going to buy each time you go shopping. A shopping list not only ensures that you don’t forget anything you need, it also stops you from making costly impulse buys. Supermarkets are intentionally set up to attract us to hot ticket items that we don’t actually need. Write your shopping list and try to have tunnel vision when you are doing your weekly shop.

While debt is an unfortunate reality in this modern world, there are also many modern debt solutions to help solve it. It is surprising how much difference-making small changes in your daily life and spending habits can make. It is important to stay consistent and to be conscious of all your purchasing decisions. Follow these five tips and start reducing your debt today.