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Dealing With Personal Debt

by Diana (follow)
Diana Anderson is a financial writer, writing on behalf of Fairgo Finance
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First things first. It is important to remember: Everyone, at some point, is in debt.

Let’s take a glimpse around the world. In Australia, the Australian Bureau of Statistics calculated the total household debt was a staggering $79,000 per person (living in Australia) in December 2013. According to CNN money 'The average American household with at least one credit card has nearly $15,950 in credit-card debt alone (in 2012.)' And it’s not much brighter in Britain, with the Centre of Social Justice reporting an average of 54,000 pounds being owed by each British household in 2014.



Woman Struggling With Bills
Image: Lisa S, Shutterstock


From paying off a mobile phone bill to getting a mortgage, big or small, we all have debt. Some debt is even considered good debt. It makes sense to borrow money to buy a home for example (not all of us have an extra 200k in our back pocket though!). But sometimes our debt can get on top of us, which makes life hard and no one wants that. So how do you deal with your own personal debt?

Firstly, make a list. A list of all your debts will help you identify where the problem lies. Don't forget to include how much you are paying, what interest rates are attached and how much you currently pay off at the moment.

Now you know what debt you have lingering over you, it's time to crack down on it. But do you pay off high interest rates first or low interest rates? There are various trains of thought regarding this. Mathematically speaking it makes sense to get rid of the high interest debt first, that way it is gone forever and you can make a start on the smaller debts.

However, paying off large amounts of debt can be considered daunting, mentally challenging and stressful. Therefore it is often recommended you start off small and work your way to the bigger debts. This is what financial commentator Dave Ramsey calls the 'snowball effect' and studies have shown people who adopt this method have more success. A quote from business.time.com states 'To Ramsey and others, it doesn’t matter if a debt payment strategy is entirely rational or not. What matters is if it works. “What I have learned is that personal finance is 20% head knowledge and 80% behaviour,” Ramsey explains on his website. “You need some quick wins in order to stay pumped enough to get out of debt completely”.'

Ultimately the choice is yours on how to tackle your debt. You might not want to be entirely debt free or you might just want to reduce some of your debt. Either way, it is recommended you do not just pay off the lowest payments possible (this is especially true of credit cards) as the interest rates will catch up to you eventually.

Once you start paying off the debt it is then time to start saving those pennies. Remember you will be paying out more to rid yourself of debt, which means some other things are going to need budgeting. Cutting back (even if it is a little bit) will make this painful process just that bit easier.

Ridding yourself of debt is a challenge. But just getting started will head you down the right road. And don't forget, if things get on top of you, you can always source additional help, but before considering alternative measures like consolidation, give these methods a try first. They might just help ease your stress.


#Debt Advice
#Money Management
#Personal Finance
#Debt
#Money
#Budget
#Top Tips
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