Top Debt Myths Revealed

You caused the debt problem...

Now get yourself out of your debt mess, right?

Wrong.

No one in their tight mind would ever want to get themselves into debt. It really does come down to spending the money that you don't have and shouldn't have even considered spending in the first place. Hindsight may well be a great leveller, but you may have faced serious issues in your life and saw easily available credit as a way of treating yourself, or even more pertinently it could be something that's beyond your control; like for example, divorce, a long term illness, mental health issues, a family member dying, or losing your job.

But the reality is that whatever the (good or bad) reasons for your current debt problems, you need to move forward thinking that from now on forward it is not relevant. If you're into self help debt solutions (or even professional debt management), then the single most important thing you need to do is have a disciplined approach with all of your spending.

Isn't debt the root of all evil?

Debt is not the problem, it's a symptom (which may have a number of underlying reasons behind it). So, before you can tackle the debt using proven debt solutions, you'll first need to address the root causes, and in many cases this will mean taking a long and hard looking at all your spending, and trying to cut it. Not only will this stop you borrowing any more, but it'll maximise your repayments.

The main objective of here is to cut the cost of all your debt, whilst at the same time examining the bigger picture of all your spending it'll be wasted (there are some top tips later on to help). That's why, in this guide, my prime focus is on cutting the cost of your debts themselves, rather than looking at the bigger picture, like bad spending habits that you need to cut down on.

Moving forward, we'll look at the best ways you can improve your current situation with using proven debt solutions...

Just How Bad Are All Your Debts?

If you are wondering exactly how bad your debts are, you need to carefully assess your situation and decide on the best course of action. You may even need to take professional advice to find the most appropriate debt solutions in your circumstances.

"Size isn't everything" as the old adage goes. What really matters is the amount of your debt in proportion to your repayment ability. Consider the following questions and their responses and think how you'd react in a similar situation:

Q. Does your annual salary after-tax exceed all your non-mortgage debts combined?

If you find that your non-mortgage debts (e.g. personal like credit cards) exceed your annual year's salary, then they are very severe. Think of it this way, even with no outgoings, you'll need to work for over one year just to repay them.

But even with manageable debt, if you have no idea where it came from in the first place, it's a big red danger sign. Take a look and compare the following answers to these two questions:

Q1: How did you accumulate debts this large?

A1: I don't really know. I think just used my credit card and all the costs just built up over time without me realising.

Now compare answer A1 with the following response to the same question...

Q2: How did you accumulate debts this large?

A2: I planned to buy a [conservatory/car/caravan], so I budgeted for it, then shopped around in order to get the cheapest borrowing, and now I'm paying it off.

Time to take a reality check

The most worrying answer is of course the first one. It indicates that you're spending far more than you earn and are using borrowing to fill this gap. If you are not aware of what you're spending (borrowed) money on, then how will you keep track of where your finances are, what your priority debts are and how you are going to cut costs. By continuing in this way, it's very likely that you'll end up spiralling into way more debt than you can handle.

Don't let this be you. Look out for the warning signs and take action now.

Even though one of the most traditional debt solutions is to say that you should never borrow your way out of a debt problem, this does ignores the fact that different debts may have varying costs. So, the key piece of advice in avoiding the cycle of debt is to never borrow more in order to get yourself out of debt.

What debt management solutions can help you?

If you are currently experiencing money worries or other financial problems, there are in fact a number of debt solutions which may help you right now.

Self help

If you find it's possible to get cheaper credit so that you can replace your current borrowing, you will be able to receive a big boost to your finances, because having lower interest rates will be more of your money will go towards the repayment of your instead of just paying off the interest element. People who have large debts could save many thousands each year in interest, with a little savvy borrowing.

Effective debt management

In essence, a DMP is effectively a debt management solution specifically designed for people who may find it difficult to make their contractual debt repayments. The type of person who is ideally suited to a debt management plan may be someone who are still struggling with a crippling debt problem in spite of the fact that they have at least some disposable income after all priority living expenses (e.g. essential every day costs and bills) have been paid.

If it's appropriate in your current circumstance, a debt management plan (or DMP) could be right for you. In many cases a DMP is certainly one of the most effective debt solutions available. This type of debt solution offers you the opportunity to repay all your debts in an affordable way, and at the same time allows you sufficient money for your everyday living expenses.