When you get to the point that your outgoings far exceed your income then you have two options. Either increase your income to cover the deficit, or reduce your outgoings. So simple, right? Ummm, wrong, not always that simple. We have been fighting a huge deficit due to losing my job whilst we are still paying off a stupid amount of credit card debt.
I am still looking for another job of course, but who knows how long that could take? So the only option is to reduce our outgoings.
We already live modestly, no posh tv subscriptions (we have netflix and amazon prime instead) so big savings there. Heating doesn’t go on until slippers, jumpers and blankets aren’t enough and we shop locally and seasonally, making use of our fantastic instant pot to make food go further whilst reducing energy bills due to quick cooking time.
All that remains is the debt. We pay an inordinate amount in debt repayments due to ridiculous interest rates that compound every month so it can feel like the repayments are barely touching the balance.
The main thing that we can do to reduce the payments whilst not increasing the debt is default. Intentionally default. Speaking to creditors, most were understanding but couldn’t do anything to help so we have intentionally defaulted.
Sounds crazy, i know. No one wants to default. It’s scary thinking that debts are pilling up and you are not paying them, but purposefully not paying so they go to default means that we can arrange a payment plan for whatever we can afford. When our finances improve we can throw good chunks of money at the balances, but being in a payment plan means that no more interest is added (although a couple added a fine for doing so).
With how bad our financial situation has become, our credit rating could literally not get any worse so there is really no point struggling to find money to make payments when they can be closed and on a repayment plan.
We have 2 credit cards that we are going to continue paying so that they remain active. We have no interest in ever using credit again (short of a mortgage) but by keeping our 2 main accounts active, we can start to repair our atrocious credit rating when everything is cleared.
So where do we go from here? 2 creditors have agreed to default our accounts immediately so we can sent up repayment plans directly with them which is great, but the others weren’t impressed. After 3 months of missed payments they will default and be passed to a collection agency. We have worked with a fair few before and most are fine as long as you maintain communication with them. In our experience collection agents only get snooty and aggressive if you don’t keep them in the loop.
So now we wait. Our deficit is smaller now and we will keep working on it, but now when i get a new job we will be able to make a real impact on what we owe. And yes, we will definitely be building an emergency fund at the same time as repaying debts. Definitely learning from that mistake!
How are you working at getting out of debt?