Living in debt

While I’m no big banking junkie, I try to follow the golden rule of money management which is “never spend more than what you earn.” This is the major reason why I keep a close watch on my credit card billing, monthly expenditures, and of course, my bi-monthly paycheck. While I don’t consider myself well off, I’d like to think I’m doing a great job of what us middle class people call as “keeping things afloat” and “making both ends meet”. This very line of thinking is probably the major reason why I’m baffled on how super rich guys can manage to lose money that could equate to 10 million times more than I’d probably earn in my whole lifetime.

This is precisely what happened with now “has-beens” Fannie Mae and Freddie Mac, companies that used to be major players on the mortgage industry. It’s not even a stretch to say that they once held the power to dictate mortgage rates because of their huge grip on the market. However, their downfall has now forced its owners to call it quits and let the US government take over its helm. The latter part is actually a good news for many. For a while most of their old clients were left hanging in limbo waiting for the some $5.4 trillion worth of American mortgages the said firms owe them. Now with the US Govt taking over they can at least rest assured they get their money back…eventually.

Well, like I said it’s baffling how guys can even consider something of this magnitude happen. I mean, the minute I think my paychecks won’t be able to meet my month’s expenses, I’ll find ways to cut costs. Didn’t this occur to the bigwigs in Fannie Mae and Freddie Mac? Yes I understand all businesses require risks but the company’s downfall - and the short time it took for it to occur - is quite a head-scratcher. I know it shouldn’t be too big of a deal as businesses go bankrupt all the time, and that there are bound to be some areas of the market which would benefit from this (US Property Market for one is now expected to stabilize after months of being on shaky ground AND home loans can finally start getting cheaper thanks to the stabily the take over provides). I guess I’m just being a bit jealous cause I know the government won’t be here to cover my bills the next time I came short.

Make this March a time to remember, sit down and look at your debts. You need to take this time to sit down and decide which of your debts are most important and then tackle those priority debts. Those which carry the largest penalties for non payment should be taken care of first since they’re only going to put you even further into debt. Something like mortgage arrears could actually result in you loosing your home so this should always be a very high priority if not the highest! Even worse are council tax arrears, this could actually result in a prison sentence, can your debt get you in any worse trouble than that?

If you have credit cards then try pay more than just the minimum. Okay fair enough paying the minimum is better than paying nothing at all but it’s just going to lead to more interest charges and keep the ball of your debt going, try pay as much as you can, especially if you don’t have any other debts at the moment.

So go do it now, sit down and sort out your March debts.

You may have come to the point where you in so much debt that you don’t know what to do, you have sold your car, given up luxuries and rarely go out anymore. You may have heard of companies offering schemes which offer to buy your property and rent it to you, at first this may sound perfect since you’ll be freeing up a large amount of money and wont have to move out or disrupt your families life. However there are a few serious things to watch out for..

1. The purchase of your property will usually be much lower than the actual market value, sometimes as much as 15% lower!
2. The lease agreement is usually on a short term basis which offers little security to you, you can expect the agreement to be between 6 and 12 months.

So before you rush ahead thinking this is a great idea and will allow you to continue living in the property on a rent basis you should carefully read into the terms and remember that these companies exist purely to make money.

Okay so today I want to go over a few techniques that can help you turn debt free whether your an adult or student living in debt. The first thing you want to do is make a monthly debt budget sheet, basically this brakes down your incoming and outgoing amounts and shows how much you have left over each month.. or rather how overdrawn you are each month!

This is similar to my previously mentioned debt to income ratio method but slightly simpler. Basically you download a free budget sheet from someone like the national debt helpline and then fill out income such as salary, tax credit, job seekers allowance, benefits and then outgoings such as mortgage, rent, council tax and so on. You will then see the total incoming and total outgoing simply by adding all these items together. I found a useful site on debt from the Hounslow council which you can find here and some useful tips from Blackpool council on prioritising certain debts . I have attached an image of a sample debt budget sheet below:

You may think it is a bit pointless wasting time filling out a form when you already have a good idea of whats going on financially but it can never hurt to have it down on paper and it makes it easy to spot the larger outgoings that you may not think much off to start with.

The government have been putting some really great articles on the direct.gov.uk website for over a year now and they have a great resource dedicated to dealing with debt.

The main points they cover as as follows:

•  Mortgage arrears or payment difficulties
• Council tax
• CCJs (county court judgements)
• Bankruptcy
• Consolidating your debts

The site actually offers quite a bit of advice on all of these topics and many more as it happens. The great thing is that you know the information on the site should be accurate and reliable since its written by/for the government. The first thing I’d say for people to do is to read up on how to do budgeting, again making the most of your current income!

Consolidating your debts into one larger loan can make your monthly payments a lot more manageable and if you sit down and do the maths you may find that the interest rate is lower overall and could therefore save you money. Anyway check out the government site and let me know what you think

I have had emails since my first posts from people who really do insist they cannot handle the debt they’re in and to be honest accepting that fact is sometimes the first step. Before you make a bold decision such as selling your possessions then consider talking to the national debt helpline.

If you feel like you’re becoming isolated by debt and are feeling intimidated by big organisations then it can be a huge relief to hear a friendly voice and become informed about your different options. They use straight forward language with no confusing mumbo jumbo! If talking isn’t enough then they can provide you with a personal budget sheet which you can fill out to help keep an eye on your finances.

As I mentioned previously, one of the most important things in my view to handling your debt is money management. Most of us work hard to pay our bills and although we may not have much left over we still feel that its our right to have a little enjoyment in life. Agreed everyone deserves some enjoyment but when you are in debt there is a careful balance you must perfect between wants and needs.

I decided to keep it simple for everyone I will produce step by step blog posts advising you what to do. This post will be step 1.

You need to sit down and work out your debt to income ratio. Chances are you’re saying to yourself ‘what on earth is a debt to income ratio?‘ but don’t worry because I will explain it. The basic principle of the idea is to compare how much you owe against how much you earn. For example if your monthly take home wage was £1,500 and your monthly debt repayment (such as mortgage, loans, credit cards) was £500 then you will device your take home wage by your debt total.

Example:
Monthly debt payments: £500
devided by
Monthly take home: £1500
= Debt ratio of 33%

Write this number down, this is the number you will be trying to lower or at least maintain in the future! If you want, you can go into more detail and work out the exact percentage each loan, mortgage etc is and aim to lower those. You can consider paying larger amounts on high percentage debts in order to lower them for the future.

Hi, my name is Debt Devil and since my teen years I have be living with debt and many of my friends are in the exact same situation. Having debt need not be a completely negative lifestyle, if managed properly then you can live comfortable with your debts under control. Most students will understand that a lot of the time being debt free is simply not a possibility, keeping up with study and living costs can be a nightmare and living without a loan can be near impossible.

To me, debt is simply something which needs to be managed carefully rather than completely cut out. Many of my friends worry far too much about paying off their debt immediately rather than staying calm like myself and keeping up with regular repayments while still having some moeny to actually live on.

Hopefully by reading my blog you will be able to manage your money better and live in peace with your debt!

Debt Devil