5 Realisations That Can Help You Pay Off Debt

Do you have debt? Do you want to pay it off? These 5 realizations about debt sent from a reader can help you out.

Photo credit: Towfiqu Barbhuiya

Almost all of us have been in debt at one point or another. The question is, how can you pay it off? These five realisations you need to make before doing so could help you out…

Are you in debt, and finding it hard to think about anything else? Perhaps you’re struggling to pay it off, and need a bit of a reality check? Well, you’re not alone.

The problem with debt is that it’s a cyclical thing; when one person goes into debt and doesn’t pay their debtor, they then end up in financial trouble. So, if your business is in the middle of recovering debt from a limited company and in need of some advice, or a start-up who has gone too far down the rabbit hole, you came to the right place. Alternatively, if you’re an individual who has stumbled down the mortgage and credit card path, don’t go anywhere.

In this article, we’ll be breaking down five important realisations you need to make before you can hope to pay off your debt. So, if you want to learn a little more about what debt really means, read on…

1. Remember, Debt Isn’t Always a Bad Thing

First and foremost, it’s important that you know debt isn’t always a bad thing. In fact, businesses often use debt as a way to leverage their business, and make money in other ways.

For example, supplier debt is a nifty way to finance immediate business costs, as it involves not paying a supplier invoice until the due date. Some invoices can have a whole month to pay, which means the money can be used for other elements of the business until the deadline comes around.

Another way debt can work in favour of a person or business is to use the debt to leverage it. Going into debt allows you the opportunity to pay back the money and, if done in good time, this can build credit score and equity value for shareholders.

These are just some of the ways that going into debt in a smart, business-savvy way can actually work in your favour. So, as long as you’re sensible about it, it’s not always a scary thing.

2. Debt is Sometimes a Smart Investment

In a more personal sense, debt is also an unavoidable fact of life if you want to invest in your future. For example, credit cards can help you to get ahead in life earlier, as long as you use them sensibly.

What’s more, a mortgage is sometimes the only way a person can get on the property ladder! But, the benefits of doing so, and getting out of the rent trap, really do speak for themselves.

Ultimately, it’s important for you to know that your debt may be an investment. So, as long as you can confidently pay it back each month, you shouldn’t see it as a “debt”, and more of a monthly tax for your desired life.

Photo credit: Joshua Hoehne

 

3. There Are Different Types of Debt

Something else that might help you with paying back your debt is to know that there are different types of debt, and which type yours falls into. According to Investopedia, these types are:

• Secured debt: a debt backed by collateral, requiring a credit check, and if the debt isn’t repaid the lender can seize the asset. 
• Unsecured debt: debt that lacks collateral, with faith in the borrower that they’ll pay it back. The debt is usually bound by a contractual agreement.
• Revolving debt: a borrower can borrow up to a certain amount on a recurring basis. Credit cards work in this way, with a maximum limit which must be repaid over time.
• Mortgage: a loan to purchase a house.

Knowing which type of debt your loan falls under means you can make plans to repay the debt.

4. Take it Day by Day

It can seem tempting to spend all your personal or business savings on paying off a debt in one go. That said, this might not be the most sensible thing to do. If you have the option to pay things off monthly, then why not stick to this?

This way, you know exactly what the deal is, and don’t have to sacrifice any emergency funds to get back on track. Having debt to pay back can be stressful but, as long as you take it one step at a time, you shouldn’t get too overwhelmed.

5. You May Need to Cut Your Spending

Of course, you can’t rest on the fact that your debt was a “good business/personal decision”, or that you’ll pay it off in time. Unfortunately, that doesn’t always fly and, if there are deadlines to meet, you should think about cutting your spending.

This really doesn’t have to be a lot; it could be simple as one or two changes you make until you have paid off the money. Some examples of simple and almost unnoticeable ways you can do this could include:

• Working from home to save money on public transport.
• Walking places, if you can.
• Cancelling your gym membership and heading for long walks outside instead.
• Making coffee or tea at home before heading to the workplace, rather than buying it.
• Planning meals ahead of time, and doing a weekly shop with these meals in mind.
• Avoiding takeout meals where possible.
• Cancelling a couple of your film and TV accounts – you can live with just one for now, right?

Of course, some of these ideas may not be for everyone, as it’s important to balance cutting spending with your mental health. For example, if heading to the gym helps you to stay mentally sane, then don’t cut this out. You have to do what’s right for you, and think about what you could feasibly live without for a short while.

Photo credit: Erik Mclean

Ready to Start Paying Off Your Debts?

As you can see, paying off your debts isn’t all about the practicalities, it’s often about the realities. Becoming acquainted with your debt, and the flexibilities it sometimes has, could put you in the best position when it comes to repaying it.

The important thing to remember is to not rest on your laurels. Yes, debt is flexible, but there are also deadlines to meet. Just keep up with these deadlines, communicate with your lender, and don’t miss a payment!

Please be advised that this article is for general informational purposes only, and should not be used as a substitute for advice from a trained financial professional. Be sure to consult a financial professional if you’re seeking financial advice. We are not liable for risks or issues associated with using or acting upon the information on this site.