Do you have debts, loans and credits?

Is your financial situation a source of stress for you? You keep paying off some obligations, but every now and then more appear? Do you want to regain control of your home budget? We have prepared a practical guide for getting out of debt. Here are 6 steps you should take to heal your finances.

If you have debts, you are not alone in this. According to Good Finance data for the first quarter of 2016, Polish households are in total indebted to almost USD 670 billion. About 90% of these liabilities are loans taken for more than a year – both mortgage and so-called long-term loans, installment purchases, etc.

The mere fact of having a mortgage is not a problem yet

The mere fact of having a mortgage is not a problem yet

For many of us, using such a product is the only chance to buy your own apartment or house. The problem arises when you have too many loans and cash loans and you do not have control over their repayment. Then what?

Many people whose financial situation is getting out of control make a mistake: they stop monitoring their debt levels. A bit on the principle of “I will not check the account, it’s like I have no overdraft” etc.

It can cause that debt will rise uncontrollably because we still have life needs and expenses associated with it. It also happens that in order to repay other liabilities we use subsequent loans without hesitation, and this is not always a good idea. How to enter the path of slowly regaining control over your own finances?

Be angry

The first step to getting rid of debt is to be clear about your financial situation. Or? Writing in black and white the level of monthly receipts, expenses, and commitments. Why is this so important? Awareness of the ratio of inflows to the level of liabilities can effectively cool the readiness to incur more, and thus protect you from falling into a spiral of debt.

Secondly, it can upset you. Pissing off your previous money management, easy-going debt, thinking “somehow it will be” is a very good starting point for change.

Prepare your home budget


Do you feel motivated yet? Then take a piece of paper, a notebook or open a spreadsheet on your computer. On the one hand, write your earnings from all possible sources – basic work, additional jobs, rental properties, scholarships, etc. On the other – all obligations. Carefully describe each of them, how much you pay per month, how much you have to pay, what are the required payment dates.

Then write out all your monthly fees carefully – the point is to estimate how much money you need for your current expenses each month. Only from this calculation: receipts minus expenses, you are able to rationally determine the amount that you can spend on paying off liabilities.

Analyze your debts

Look at your commitments. Which requires repayment every month and no have mercy, you have to pay for them? Which ones can safely wait until you pay off the more smoking ones? What are the costs associated with each commitment? What is the interest rate on your loans, credits, and installments? Take a look at the contracts, call the helpline of the banks and find out how much it costs you to service your obligations. The ones that cost the most should go first.

The second option is this: arrange the liabilities from the smallest to the largest and use the surpluses generated in each case to overpay the lowest debt. If as a result of such an operation one debt disappears from your list and for example 4 and not 5 remains, your motivation will get a very positive impulse. Caring for her in the process of debt relief is very important. The disappearance of subsequent debts from your list will be a reward for your effort to pay them back.

Analyze your debts also in terms of their origin. How were they created? Are they really necessary? This reflection will allow you to realize how much trouble, for example, thoughtless shopping costs you. One of the most common causes of debt is excessive consumption: did you really need a new TV/bike/juicer? We have already written about it here.

Plan your monthly debt repayment

Plan your monthly debt repayment

Look at the relation between the amount of obligations and your earnings and monthly expenses. Are you able to incorporate your debt repayment into your monthly budget? You can read more about planning your home budget here.

If so, great, you have to watch over the plan and fill the budget hole every month. If not, think about financial optimization. Can you do something somewhere, save money, tighten your belt – in a word, modify your expenses so that you spend more money on paying off debts?

Going out on a financial straight line should be planned rationally: the too ambitious plan will be impossible to implement, not ambitious enough will not motivate us to make efforts. However, paying back debts should become a priority for you. It’s very motivating when you see them decreasing every month. However, this often requires that you impose strict financial discipline and savings. For some it’s difficult, but it’s worth it.

Think about extra earning

If your monthly budget is barely up, think about additional earning. What could you do to earn more? Any minor services? Additional jobs at work? Overtime? Or maybe your home will have valuable things that you don’t use and which you can sell? Debt repayment time can be a period of organizing the space around you and implementing a more balanced lifestyle. Organizing personal finances can also translate into control over other areas of life, e.g. the style of consumption, ways of rewarding for effort, rest, etc.

Maintain motivation for positive change


Debt repayment is not easy and pleasant, but it’s worth trying because the demanding ones shape and teach us the most. To persevere in the decision to heal your finances, it is worth using various motivational techniques. That is why we recommend reading the texts of Wojciech Herra, a personal development trainer who wrote for Good Credit:

  • Say hello to yourself from the past
  • In search of motivation: start listening to your heart
  • What is the price of success?
  • 6 rules, thanks to which (in the end) you will implement the plan

Think about your relationship with money?

How you operate financially is often a derivative of your approach to money in general. As you work to regain control of your finances, you may come across many deeper issues than just reckless shopping. That’s why you should take the opportunity to reflect on your relationship with money.

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