If you have debts, it means that you’ll be seriously overspending money – and if you’re overspending, chances are, you’ll find it really rather difficult to pay your mortgage, which could mean that you end up facing foreclosure. Learn how to pay off your debts so that you can free up your cash flow and, if you can, avoid foreclosure..
Create a Budget
The very first thing you need to do to dig yourself out of debt is create a budget. Sit down with all of your bills, incomings and outgoings, and work out exactly how much money you owe, how much money you spend, how much money you have left at the end of the month and exactly what you spend your money on. For example, even if you think you’re only spending a little bit of money buying a coffee each morning on the way to work, that three bucks adds up to 60 bucks at the end of the month – one coffee for each and very weekday. You shouldn’t estimate here – dig out all of your bills and use your bank statements so that you know exact numbers. If you have to estimate, always over-estimate. Add up all of your monthly spending including tings like food shopping and even clothes shopping and subtract the amount from your salary or from your monthly earnings. You’ll be left with a “disposable” amount of money, or, you may well find that your outgoings are more than the money you have coming into the house each month.
Identify Your Debt
Your mortgage will be the most important debt that you have. If you absolutely have to, you could get away with not paying the gas and electric if it means keeping a roof over you and your family’s heads. Identify all of your debt and make notes of the minimum repayments that you have to make to pay each debt. If those minimum repayments, including your mortgage, are still more than the amount of money you have coming into the house each month then you’ll have to ask for expert help. You can also call all of your providers to let them know the situation. Many providers will let you pay your debt back at a much-reduced rate if you continue to take utilities with them – in fact, I’ve seen providers allow debts to be paid back at just $3 a week. It’s always worth asking.
You might also want to call your mortgage company and let them know that you’re having trouble paying the mortgage before you let it get to the stage where they chase you for payment. Most mortgage companies will be happy to at least try to help you and contrary to popular belief, they don’t actually want to take your home away from you. One option might be for you to pay only the interest on the mortgage whilst you’re trying to sort out your debts, or another might be for you to remortgage or switch over to an ARM or fixed rate mortgage. There will be an option for you and most mortgage lenders will be happy to try to help you rather than penalise you.
Squeeze Your Budget
Looking at your monthly outgoings gives you a really good idea of what is necessary and is not necessary. For example, do you really need that gym membership? All of those channels from your cable TV provider? You can cancel or amend a number of your monthly outgoings to squeeze even more money from your budget, such as magazine subscriptions and insurances for items that you don’t need or don’t use. How much money do you spend on your food shopping? Can you cut that down? Switch to own brand products and buy savvy, stocking up on cheap yet filling foods like pasta, potatoes and pulses. When there are special offers for things like laundry detergent and branded goods that you buy frequently or that you eat a lot of, such as chips or chocolate bars, stock up. You might also want to have a look at couponing – with a little bit of work, you can save potentially hundreds of dollars each month, which could all go towards paying off your mortgage.
Finally, call all of your utility providers and ask them to reduce your bills (if you’re not in debt with them). If they decline, ask to speak to their retention department. Usually, there will be a deal that you can agree on. If not, go online onto comparison sites and look around for alternative, cheaper providers.
Paying Your Debts
Generally, it’s advised for you to tackle the biggest debt with the highest amount of interest first – this will usually be your mortgage. Pay back the minimum amount on the rest of your debts and focus all of your energies on paying your mortgage back as quickly as you possibly can. If you manage to squeeze more money out of your budget, throw it at your mortgage – the more, the better. If you can show your mortgage lender that you’re trying to cut back and create more money in your budget, you’re demonstrating that you’re doing everything that you possibly can to save money, so they’ll also be more likely to give you help in return.
Any money that you have leftover should either be saved up, or used to pay off your other debts. Savings are really, really important, and if you can afford to save, you most definitely should. If you ever find yourself in the situation where you simply don’t have enough money to pay off all of your bills, or if you have an unexpected bill, you’ll at least have some money put to one side that you can use. Every little helps!