Being in debt is unpleasant for most people. But anyone can get into financial difficulties, be it self-inflicted or due to unhappy living conditions. Unfortunately many people ignore the situation at first. But it is important to become active right now, because if you want to reduce debts, you have to proceed according to plan. This includes dealing with creditors, drawing up a debt plan and examining financing alternatives. If you want to reduce your debts permanently, the following guide can be a first aid.
Gain clarity about your situation
A first important step in reducing debt is to get a good overview of your own situation. Only rarely does overindebtedness result from a single loan. The problem is usually a confusing accumulation of several debts. It is therefore advisable to keep a budget book so that you always have an overview of your income and expenditure. Therefore, first collect your documents and create an overview:
- Where do you have debts?
- How high are your debts?
- How urgently do you have to react to individual requests for payment (deadlines)?
- How high is the total level of debt?
Compare this with your available financial resources to see how far you can reduce the debts:
- What is your regular income and expenditure?
- Is there room for additional savings or income?
- How much money is available to you each month for repayments?
- Is it currently possible to meet all demands at all?
- Clarify the situation with your creditors
Once this first important step has been taken, appropriate action can be taken. First of all, you should make very urgent claims and contact the creditors. Otherwise, they could quickly engage a debt collection agency, which would incur further costs. Then it becomes even more difficult to reduce the debt. A negative Experian entry also threatens and can make your life unnecessarily difficult in the future.
Try to come to a compromise with the creditors. Perhaps a temporary deferment of payment, payment in instalments or, if this already exists, payment of lower instalments is possible.
If it is unlikely that you will be able to meet the claims in the foreseeable future and you may even be threatened with personal insolvency, it may be advisable to propose a settlement to the creditors. This means that you agree with the creditors on a partial payment and a certain part of your debt is forgiven. Creditors are often quite willing to negotiate here, as they will then receive at least a part of the outstanding amount.
Draw up a debt plan and reduce debts
After you have clarified the situation with your creditors, plan the repayment of the debts by creating a debt plan to reduce the debt. Make a list of your creditors’ claims and deadlines and distribute the money available among the claims. Whenever you have some money left over, you should use it to pay off the smallest claim faster. This will make the situation clearer and easier to manage over time.
It is tedious and takes time, but in most cases the debts can be reduced. Try to live as economically as possible and avoid unnecessary expenses. You may also have the opportunity to work some overtime or take on a part-time job to improve your income. All this can help to relax the situation and get out of the debt trap faster.
Consider debt restructuring to reduce debt
In some cases, it can be useful to take out a loan to pay off other debts when reducing debts. This can make particular sense if there are many smaller claims, perhaps even with high interest rates. This requires some calculation and weighing up. Do you perhaps pay so much interest on the various receivables that you would be better off with a cheap rescheduling loan?
A great advantage is also the better clarity. It is often easier to reduce debts and also mentally less stressful if only one loan has to be serviced and not a confusing jungle of many smaller debts.
Seek professional help if the debts grow over your head
Having to reduce debts is not always easy. If you feel overwhelmed and think that you can’t handle the situation on your own, then professional help through debt counselling may be the right way for you. In almost every city you will find debt counselling centres. There are also anonymous debt online consultations, such as at Caritas, can get information in advance. Here they will help you, if necessary, to get an overview of your financial situation and draw up a debt plan.