Dealing with debt effectively

Not all debt is a bad debt.

Dealing with debt can be a daunting task, but it is possible to get out of debt with careful planning and effort.

If you are one of people who are ready to fix your financial situation into a better one we are happy to share these free tips on how to deal with debt.

But first you need to be able to classify the type of debt you are and how its going to play a role into your financial stability.

There are two types of debts out there:

• Unsecured debt which tends to be short term in nature. This might include personal loans, credit cards and store cards OR we can say a debt that is spent on liabilities.
• Secured debt which is a debt that is used to buy assets, things that will put money in your pocket. It can be shares, real estate, commodities and businesses.

When we talk about debt being a financial problem we are primarily referring to short-term unsecured debt which is used to buy things that won't make you money and leave you broke.

In fact, Real estate is often referred to as a good debt to have because if the value of your property is rising faster than the cost of your mortgage then you are making money by having this mortgage in place. But you only really make money on your house if you sell it.

Unsecure debt

If you live with personal debt and want to remove it from your life then you will need to set your goal of when you will achieve it. You can mark it on your calendar or write it in your diary to help you focus on a goal rather than what worse could happen.

Here are five stage strategies that will help you tackle your debt.

1. Stop making it worse.

Before you start taking steps to get rid of your bad debt, you have to stop accumulating fresh debt. This will only make things worse and it will be harder to get rid of your existing problem.

To beat the debt you have to make it clear it isn't welcome in your life. Remove the temptation from your life.

2. Decide first, then get to it.

Don't embark on a debt eradication mission until you have made the decision to win.Planning is everything but the absolute commitment to a life with no short-term debt is the winning formulae. Visualize your outcome and you will stand a much greater chance of reaching your goals.

3. Know your enemy.

Ask yourself. What are you facing? Quantify your enemy in pounds, pence and percentage points. Before you form your plan to attack you have to know what you are up against. This part of my debt-busting strategy will be painful for some. You will have to focus on your debt and work out what you have to deal with. Take out a pen and paper and create the following table:

• Source of debt
• Current level of debt
• Interest rate
• Minimum monthly payment required.

4. Plan your attack

Its time to plan how you will tackle your debt. Take a look at the table you made. You are going to start by tackling a debt with the highest rate of interest first. The debt that costs you the most to service each month is the debt you need to ditch most urgently.

5. Allocate your resources.

When it comes to dealing with this debt you have to work out where the resources are going to come from. It's likely that the money to clear your debt is going to come from one of the two places:

• Surplus income
• Existing savings

If getting rid of debt is your top priority you give then it will take preference over any other desire for spending. Shopping for fun and luxury goods will no longer be a consideration during the time you are fighting your debt.

Making these choices can really be tough, especially if they involve an alteration to the way you live. Moving away from a lifestyle you have become used to over a period of years is a tough decision to make from an emotional point of view especially in the early days it will feel very strange and this is why it is important to continually focus on the objective and the end results.

Get support from your family and close friends. Explain to them why it is so important that you you take control of your debt and also tell them when you are finding it difficult to stick to your plan. Having others around you to support you throughout thus process will help you share the emotional burden and make the transition easier from debt to no debt much easier.

Being completely stuck for resources to clear your debt can sometimes lead to desperation. It is always worth remembering that there are other options available to you during this process. Your friends and family might be in a position to help you out financially for a short time and you can create side hustles that will help you to earn extra cash quickly. This can often be a cheaper way of borrowing money or making it than using traditional lenders which can bring potential dangers.

Additional Tips

Negotiate with your creditors. If you are struggling to make your monthly payments, you may be able to negotiate with your creditors to lower your interest rates or monthly payments.

Seek professional help. If you are feeling overwhelmed by your debt, you may want to seek professional help from a credit counselor or debt management company.

However you have to decide how to destroy your debt, it's going to be hard work and knowing this at the start won't make it easier but it will open your eyes when you decide to deal with debt and help you throughout your journey of being financial free.

Secure debt

Secure debt is a type of debt that is backed by collateral. This means that if the borrower defaults on the loan, the lender can seize the collateral to recoup their losses. Secured debt is generally considered to be less risky than unsecured debt, because the lender has some protection in case of default.

Some common types of secured debt include:

Mortgages. A mortgage is a loan used to purchase a home. The home itself serves as collateral for the loan. If the borrower defaults on the mortgage, the lender can foreclose on the home and sell it to recoup their losses.

Auto loans. An auto loan is a loan used to purchase a car. The car itself serves as collateral for the loan. If the borrower defaults on the auto loan, the lender can repossess the car and sell it to recoup their losses.

Secured credit cards. A secured credit card is a type of credit card that requires the applicant to deposit a cash security deposit. The security deposit serves as collateral for the loan, so if the borrower defaults on the credit card payments, the lender can keep the security deposit.

Secured debt can be a good option for borrowers with poor credit history, because it can help them to build their credit score. However, it is important to remember that secured debt is still a debt, and it should only be used for essential purchases that you can afford to repay.

Here are some of the advantages of secured debt:

Lower interest rates. Secured debt typically has lower interest rates than unsecured debt, because the lender has more security in case of default.

Easier to qualify for. Secured debt may be easier to qualify for than unsecured debt, especially for borrowers with poor credit history.

Can help to build credit. Making on-time payments on a secured debt can help to build your credit score.

Here are some of the disadvantages of secured debt:

You may lose the collateral. If you default on a secured debt, the lender may seize the collateral to recoup their losses.

You may have to pay a security deposit. Some secured loans require you to pay a security deposit, which is typically returned to you if you make all of your payments on time.

You may have to pay higher monthly payments. Secured debt may have higher monthly payments than unsecured debt, because the lender has more risk.

Overall, secured debt can be a good option for borrowers who need to borrow money and who have poor credit history. However, it is important to weigh the pros and cons carefully before taking out a secured loan.