A while ago – ok, a long while ago – I wrote that I had finally become debt free. Since then I have been pondering how to explain how I did it considering that I have a low paying, irregular and unsecure job. This is how I managed it.
Make the decision.
Getting out of debt – especially if you don’t earn a lot of money – is going to be a long and difficult process. You need to make a conscious decision and be prepared to be in it for the long haul; it is not going to happen overnight, depending on your personal circumstances it might take months or, more likely, years. However, it will be a very rewarding journey: not only will you reach your goal of being debt free but you will also gain peace of mind, new knowledge and confidence in your own ability to achieve whatever you want.
Okay, you know you’re in debt, you keep getting letters, final reminders and threatening phone calls but do you know exactly how much you owe and to whom?
Go through all the mail you’ve received in the last couple of months – yes, all the letters you have left in a pile, as if ignoring them would make them disappear – and open them. Use the last one from each creditor to get the most up to date balance. Brace yourself and add them all up, the total is probably going to give you a shock but you will know exactly where you stand. You will need this information later.
Open a new bank account. This is VERY important, you want to be able to manage your money without the fear of your bank paying off a creditor without your consent and leaving you in an even worse position. Make things easy on yourself and remove all temptation by getting a basic account. They are geared towards people with poor credit scores and do not have an overdraft facility. Most offer a debit card, direct debits and online banking. I went with the Co-operative Cashminder account because, once I had opened it, I could manage it online or go to my local post office, but other banks offer them. I would, however, advise against opening your new account with the same bank you already use.
Give your employer your new banks details immediately so your wages are safe.
Your next move is to organise your repayments to your creditors. In order to do that while still paying your bills you will need a debt repayment plan (DMP). It means negotiating with each creditor to make them accept an affordable payment and, most important, to get them to freeze their interests. Not such an easy thing to do when you feel so out of your depth especially as they will most likely try to make you get a consolidation loan, which is a VERY bad idea.
Although I have heard of people being successful with this DIY approach, I chose to use a company to do it for me. Now, a word of caution: there are many firms who offer DMPs, some even offering a “free” service for which you actually pay as part of your monthly payment. Do NOT use these companies under any circumstances: your aim is to reduce your debt, not to add to it.
I used National Debtline, a well established charity who provides completely free advice and they referred me to Payplan. Now Payplan is a bit of an odd one: it is a for-profit company partially owned by the banks BUT they offer a free service and, best of all they managed to freeze all the interests on all my debts (although they don’t guarantee to manage that). They will assign you an adviser and, together, you will be able to create a realistic budget. It will be tight, very tight, but realistic.
Hopefully, this post has shown you how to get things in motion. In my next few posts I’ll explain how I managed my new, day to day life.