We’ve helped you with all the standard debt solutions, now read about your other options!
Ever more people are leaving it too late to pay off their debts and are turning to equity release to delay repaying their debts right up till their deaths. This could leave little or nothing for dependents. If you or your parents are forced to use equity release for these reasons, you’ll lose out in the long run.
So maybe you should consider taking a bit more risk now, instead of storing it all up for later. The cost to you will probably be smaller. Here are five more risky ideas for getting out of debt:
1. The Fat Tony philosophy
FAT TONY, GANGSTER: Is it wrong to steal a loaf of bread to feed your starving family?
BART SIMPSON: No.
FAT TONY: Well, suppose you’ve got a large family. Is it wrong to steal a truckload of bread to feed them?
BART SIMPSON: Nuh uh.
FAT TONY: And what if your family doesn’t like bread. They like…cigarettes?
BART SIMPSON: I guess that’s OK.
FAT TONY: Now, what if, instead of giving them away, you sold them at a price that was practically giving them away. Would that be a crime, Bart?
BART SIMPSON: Hell, no!
I’ve often liked the idea of robbing a bank to give to the indebted. Poetic justice! If you’re in debt or know someone who is then it’s an option. What’ll stop most of us is this annoying thing called a ‘conscience’. Damn it!
So, moving on:
2. Ask for a payment holiday
The Fool usually recommends against payment holidays. Firstly because you’ll effectively be charged a higher APR than is advertised (sneaky). Secondly it means you’ll pay more interest. During those months of the holiday you’ll be charged interest on your entire debt.
However, if you ask for a holiday on your cheapest debt and throw all your repayments at your most expensive one, you’ll save a lot of money as you’ll pay less interest overall. This means your debt will go down faster!
This is risky for three reasons. Firstly, the lender may think you’re asking because you you’re going to default anyway. If you’re not careful, they may also misunderstand and treat it as a default. Finally, there is a real risk that you will be tempted to spend your repayment that month, rather than putting it towards your more expensive debt. Bad move!
So make it clear to the lender why you are asking for a holiday. Also, get in writing from the lender that this is an agreed holiday, not a default.
3. Extend the length of your loan
We’re dead against extending loans at The Fool. Longer loans mean your monthly bills might be lower, but overall you’ll pay a lot more interest. Also, over a longer period you’re more likely to suffer some sort of additional financial difficulty, through injury or redundancy, for example. It’s not uncommon. You really don’t want to still be in debt when that happens!
However, if you have a large debt with a whopping great interest rate and another loan with a much lower rate, ask the lender with the lower rate to extend the deal. If you’re monthly repayments then go down by £50, use that extra £50 to repay your most expensive debt. This way you’ll pay less interest and clear your debts faster.
It’s important, firstly, to use the savings you make to repay the more expensive debt, or you’ll end up in debt for longer, paying more interest. Secondly, and roughly speaking, you can’t extend your cheaper loan beyond the time you think it’ll take you to pay off your more expensive debt. If you do, it’ll likely save you nothing, or even cost you more.
4. Take out PPI!
Taking out payment protection insurance is another seemingly bizarre suggestion for The Fool. We usually suggest very strongly that you don’t take out PPI through the company that is giving you the loan because it’s hideously expensive.
However, you’re more likely to get a loan if you ask for PPI. What’s more, it’s more likely to be at a lower interest rate. So at first feign interest in PPI and ask for a quote with it. When you get the documents, you’ll have a short window to cancel the PPI. CANCEL IT! NOW! Then you have your loan without the expensive insurance.
The risk is you forget to cancel it or you’re too lazy. Congratulations, you’ve now probably added several thousand to your debt.
5. Consolidate
We much prefer budgeting and snowballing to consolidation. Firstly it’s because you’ll probably clear your debt much faster. Secondly you’ll pay less interest. And, thirdly, we’ve seen time and time again that people who consolidate mostly go on to increase their even debts further.
However, if snowballing isn’t an option, and if you are keeping a spending diary and sticking to your monthly budget, you quite possibly have the right mindset to tear up your credit cards when you consolidate, and not to look back.
You can use any for of credit to consolidate, be it a low-interest or 0% credit card, or an unsecured loan. You could use a secured loan, but that’s a risk too far for this article!
There is one thing that is absolutely certain, from my experience in reading messages from thousands of debtors: if you’re not budgeting properly each month, forget the above ideas. Budgeting must come first or you will, as always happens (that’s just a small exaggeration), get into worse difficulties.
You must consider your more standard and less risky ways out of debt first, such as 0% cards, snowballing and much more, which you can read about in our guide: How To Get Out Of Debt.
More: Five Steps To Brilliant Budgeting!
