People stuck in debt might feel as if the world is shrinking around them. Added stress, late payments, extra fees and penalties, all of this begins taking its toll on the person. The pressure is not easy to handle but giving up will only make the problem worse and eventually the situation will spiral out of control and legal problems will follow. If faced with a situation like this, make sure that you immediately asses your financial standing and begin setting a plan which will help you get back on track financially.
Identifying the Problem
The first step to solving any problem is realizing that there is one. Once this has been established then you must identify what is the cause of the excessive debt. More than likely the debt was accumulated over a longer period of time as opposed to in a short span. Is there a personal loan that you are struggling to pay back? Do your monthly bills amount to more than your income and salary? These questions will help you find what is draining most of your money so that you can alleviate the source or at least contain it to help bring you back above water.
Paying the Debt Off
A one-time payment to get rid of all of your debt is most likely not a possibility. Selling valuable items could help build a source of cash that can be used to pay back part of the debt. Stocks, property, cars or other similarly valued items fall into this category. There are two popular methods that can be used.
Ranking your debt by the highest interest paid to the lowest interest paid is the basic strategy behind this method. After this, set aside an amount that you can afford to put toward paying off loans or credit card debt every month. Pay the minimum payment on the lower ranked debts (lower interest rates) and put the rest toward the highest ranked debt (highest interest rate) such as your credit card. Once the highest ranked debt is paid off, you can allocate this amount to the next highest interest rate debt. Credit cards in the UAE have an average annual interest rate of approximately 34%, meaning paying off your credit card debt will probably be a priority.
Instead of ranking debts by interest rate, this method requires you to rank your debt by the smallest balance first to the highest balance. As with the Avalanche method, determine what the total debt amount that can be paid off every month is and then pay the minimum to the highest balances and pay the remaining to the lowest balance. The goal is to pay off the smaller debts first. As each loan or credit card is paid off, move to the item with the next highest balance.
By understanding that you must first identify that there is a problem to be addressed, you can then begin planning how you will tackle the debt that has been causing you so much stress and problems. It is important not to continue incurring debt during this period or you will fall into a vicious cycle that makes it virtually impossible to ease your financial struggles.