How to get out of overindebtedness in 10 easy steps?

  We live in an age of spending, where the choice of goods and services we can buy far exceeds our ability to pay for them. This inequality can easily make it difficult to sign up for a credit card, mortgage or other loan. To be honest, the statistics are staggering. In May 2019, total household debt in the European Union reached 5.88 billion euros: mortgages and consumer loans making up the bulk of the debt. With advertisements calling for ever more spending, reducing debt is a real challenge. We've put together a 10-step strategy to help you get out of debt and reduce your financial obligations.

It will be difficult. It will take time. But it can be done. Here are some tips to help you.

 

1. Stop accumulating debt

First of all, you need to change your current posture and spending habits, which are the main reason you're in the financial situation you're in. This means you need to stop increasing your debt immediately. Open your wallet and get rid of all your credit cards to avoid the temptation to spend even more money. You can lock up your credit cards in a safe place or freeze them by contacting the card issuer (bank, credit companies...), or literally freeze them by putting them in the freezer. You also need to review your budget and the way you spend your money. Give up expensive habits such as luxury travel, gym memberships, buying the latest and most expensive equipment, tobacco and alcohol, and use the money to pay off/reduce your debts.  

2. Determine the amount of your debt

Knowing the true amount of your debt can be daunting. However, it's time to face your fears and deal with your debts so you can take control. Make a list or chart of all your debts, including :

• what you need
• the total amount you owe
• the due date
• monthly payment

It's not just a matter of making a list and forgetting about it, but updating it every time the amount you owe changes and especially when you make repayments. This will give you a sense of accomplishment and you will begin to realize that you can get out of debt.  

3. Pay more than the minimum payment

Making larger monthly payments is one of the most effective ways to pay off your debt faster, regardless of the type of debt - credit card, mortgage or student loan. The fact is, when you make the minimum payment, you end up paying a high amount in fees on the loan, as opposed to paying off your debt with larger monthly payments. So, not only is this a way of saving hundreds, if not thousands, of euros, it also speeds up the debt discharge process. Make sure your contract does not include any prepayment penalties before increasing the minimum payment.  

4. Make an additional payment when the opportunity arises.

Think about it for a moment: what's your strategy when it comes to buying what you really need? Most often, you set aside any extra money, saving every day until you reach the amount you need. This should also be your approach to debt repayment. As soon as you have extra money, put it towards paying off your debts, and do it as often as possible. Some months you won't have any money to devote to repaying your loan, but other months you might be able to transfer €50. The fact is, these small steps will help you get out of debt faster.  

5. Sell what you don't need

You probably have a lot of stuff at home that you don't use anymore. Things like old clothes, furniture, video games, etc. should be considered as extra money. Here's a plan for you: collect anything you don't need but can use for other people and sell it! Organize a garage sale or sell items on eBay and use the money to reduce your debts.  

6. Pay off your debts one by one

In 2016, Harvard researchers found that the most effective approach to getting rid of debt is to focus on paying off the smallest debt in full, also known as the snowball method. It works as follows:

• Make a list of all your debts, from the smallest to the largest.
• Pay the minimum amount on all but the smallest debts.
• Each month, pay as much as you can on the smallest debt until the debt is paid in full.
• Then focus on the next small debt.

Try this method and see if it works. From a psychological point of view, this can have a positive impact and help you see the light at the end of the debt tunnel.

7. Earn enough to get out of debt.

The debt settlement process is not the time to relax. To reinforce your efforts, ask yourself if there's an opportunity to earn more money. You can start by asking for a promotion in your current job) or submit your CV for a new, higher-paying job. If you have useful skills and passions, turn them into money. Think of all the sources of passive income you can think of. You can also go to employment platforms (pole emploi, temp agency,...) to find extra work and earn extra money. Above all, don't forget to use the extra money you earn to pay off your debts, not to buy new things.  

8. Take out a refinance loan.

Refinancing a loan essentially means taking out a new loan to pay off one or more loans. This usually enables you to obtain a much lower interest rate, or to reduce the total amount of the loan to be repaid. For example, refinancing a personal loan is often used to consolidate several loans into a single payment. Similarly, personal loans are often used to refinance credit card debts. If you're looking to refinance a loan, you need to study the details of your existing loan contract and compare it with what's on offer from other creditors to find the best option for your personal financial goals. Check whether there are any penalties for prepaying an existing loan, otherwise the savings from refinancing will be less than the cost of prepayment.  

9 Use mobile applications

When it comes to paying off debt, technology is on your side. Debt repayment apps exist that help you organize your debt information in one convenient place, choose the best repayment strategy, stay motivated, focus on the real reasons why you want to get out of that debt situation, and more.

10. Get professional help

If you think it's too difficult and complicated to get rid of your debts, don't hesitate to ask for professional help. If you can't control your spending, you can get help online: financial forums, groups, useful articles, etc. Summary If you have debts or simply owe money to friends, now is not the time to bury your head in the sand. Have faith in yourself and keep paying off your debts - you'll thank yourself in the end. Are there any other strategies you've applied that deserve a mention on this list? Let us know! Over-indebtedness is a common financial problem, but it can be difficult to know how to solve. In this article, we present ten key steps to help you get out of over-indebtedness. First of all, we advise you to stop accumulating additional debt immediately. Next, it's important that you determine the total amount of your debt so you can develop a solid plan to pay it off gradually. We also explain why it's essential to pay more than the minimum payment each month, and how making extra payments as soon as possible can significantly reduce your overall debt. In addition, we discuss the idea of selling assets you don't need or whose sale could generate additional income to pay off your debts. We then review the different strategies that can be used to pay off debts one by one and increase your income to speed up this process. Finally, we look at the possibility of taking out a refinancing loan or calling in a professional to help you get out of debt. Follow these practical tips and get back to a healthy financial situation as soon as possible!