For many people, debt is a weight around their necks that diminishes their enjoyment of life. Whether it’s simply the anxiety and depression that comes from being in financial trouble or the real-life reduction in lifestyle that comes with having no money and being unable to purchase or afford the experiences and things you desire, there is no doubt that debt ruins lives in many senses. This depression can also prevent people from coming up with solutions to their debt problems, as the negative frame of mind isn’t conducive to positive and creative thinking.
But the key thing to remember about debt is that it is simply a situation, and you always have control over one aspect of any situation: Your reaction to it. Here are two creative ways to handle your debt that you might not have thought of.
Organisation is always the key to managing your debt. Many people reach a point where they want to bury their heads in the sand and pretend that if they don’t know what they owe, it will somehow go away. That sort of indulgence won’t serve you well – instead, dive in and get organised. Know what you owe and the interest rate being charged on it all. Then, detail all of your assets – a car, a home, bank accounts or other savings, everything. For savings and investments, calculate the interest you’re earning.
Armed with this information, make some hard decisions: You may not want to touch your retirement income, but calculate how much you’ll pay in interest on your debt and compare it to the interest being earned. If you’re spending more on your debt than you’re earning, it’s a loss either way – and in the long run you’ll do better to pay off your debt and rebuild your savings.
Also, consider a Home Equity Line of Credit (HELOC). The interest rate on a HELOC will almost certainly be lower than the debt you’ve accumulated – and if that’s the case, it makes no sense not to trade equity for debt. Don’t get lost trying to preserve savings and assets when your debt load is climbing – clean everything up, and then rebuild from there.
Make the Call
The sense of powerlessness debt instils in us also makes us feel like we’re at the mercy of the banks and businesses we owe – but if you think creatively, you’ll see that the opposite is true. You have their money! The dirty secret of debt is that many banks and other organisations are perfectly happy to get something rather than nothing. Sometimes all it takes to reduce an amount owed or settle a debt altogether is to make some phone calls. Call your bank or mortgage holder and ask. For what? For a lower rate, for a settlement amount far below your actual debt, for a payment plan that will help control interest – anything! In other words: Be creative.
People are often amazed at how easy it can be to have the terms of your debt altered. Banks know that a large amount of debt gets written off every year, and if they have to turn you over to collections they will only recover a small amount of the debt anyway. Call them up and make them an offer. If they won’t work with you, it’s only a phone call and you’re no worse off than before.