Complete freedom from debt for all persons is an impossible dream. Some people have little money sense and buying on credit is almost like an addiction, so are unlikely to ever become debt free. And where there are people willing to take out loans, credit cards, and other forms of borrowing, there are companies all too willing to extend credit to them. The last thing you want to do is file for total bankruptcy by being in too much debt.
We All Need Credit
Credit in itself is not wrong. All of us to some extent use credit. Unfortunately millions of people in Europe have been facing increasingly tough times and are finding themselves in debt. Even some countries’ governments have faced bankruptcy and have had to take drastic measure to balance their books. It’s unlikely that Italy, Greece, Ireland and Portugal. for example, will experience freedom from debt for perhaps decades to come. It might be that you need to sort out your priority debts you have to pay in order to keep a roof over your head.
Before thinking about the more drastic ways to get out of debt, you should also be looking at your day to day living costs, as well as making the most of any savings you might have. Doing this may help you to such an extent you find freedom from debt without any need for outside help. It must also be said that sometimes the problems have gone too far and professional help should be sought in order to cut your debts.
The magnitude of our debt problem is Citizens Advice Bureaux in England and Wales dealt with 8,652 new debt problems every working day during the year ending September 2011.
Bank Interest on Savings
Low bank borrowing rates throughout Europe has resulted in those of us who have savings suffering lower returns on our savings. And in those countries where the level of inflation is higher than the deposit rate, it means that freedom from debt can be even harder to achieve, as inflation erodes the value of savings. Some countries have their own schemes to encourage people to put money in to accounts which are tax free. The UK, for example, has what are known as Individual Savings Accounts, or ISAs. Individual savings accounts were introduced in April 1999. They are simply a tax wrapper within which you can hold a range of different investments, within which returns are tax-free. You can open one cash ISA and one stocks and shares ISA each tax year. The amounts of money which can be invested in either or both tends to change each tax year. For individuals who are liable to pay tax this form of saving can be effective, as not only do your underlying investments hopefully increase in value, your ‘profits’ are not taxed. The individual subscription limits from April 2011 are £10,680. The full amount can be invested in a stocks and shares ISA with one provider. Or up to £5,340 can be put in to a cash ISA with one provider, and the other £5,340 can be placed in a stocks and shares ISA with the same, or another provider.
Perhaps not the best way to secure freedom from debt
Be Prepared To Switch Savings Accounts
Talking about investments, whether you use an ISA or not, never just put your savings into an account and assume you are will be getting the best rate of return. Banks and building societies are notorious for offering attractive rates to new savers. After a while though those rates can become unattractive when they fall, or other products come on the market which are better. Rarely will you find a financial institution contacting you to tell you about newer improved products. Whilst you are on a lower interest plan they can get away with paying you less. So be proactive, keep a look out for better rates than you are currently getting, and be ready to switch if necessary.
Take Action to Reduce Credit Card Debt
What is a viable solution for this problem of trying to pay down debt on our credit cards? Target one card to payoff! Make the minimum payment on all the other credit cards and then use all remaining funds to pay down the targeted card.
It is best to pick the credit card that you have the highest interest rate on as the target. Tear this card up so you cannot use it for any other purchases. Continue this until this card has been paid off and then pick your next target in the same manner and repeat the cycle until you are down to just one credit card for everyday use.
It might also be worth contacting your credit card providers to ask if they will consider reducing your interest rate for a time. If you don’t try you won’t know, and it’s amazing how many companies would rather receive less interest from you than see you default on your borrowings altogether.
Debt Freedom Day
A term coined to show how long it takes the average consumer to have earned enough to cover their debt interest for the year. During 2011 Debt Freedom Day was 15th February, five days earlier than it was the previous year. That’s surely a sign that people are less inclined to want to take on debt, as well as consumers wanting to pay off their debts faster. In the UK the typical consumer will pay £2,900 during this year just in interest on loans and credit cards.
With the global economy as it is, the number of Europeans with debts is on the increase. If you are already making the most of your savings then you would do well to look for ways of reducing your outgoings. It isn’t easy to secure freedom from debt, it can be a painstaking process, but for many people it can be achieved.
