When working in debt collection, helping your clients to get out of debt is all about creating a plan that enables them to pay back the money that they owe to you at a rate that they can afford. Of course, no one likes to think too much about their debts spiralling out of control, but it is not uncommon for clients to lose track of their personal finances when following a debt repayment plan.
Although getting out of a debt can seem like an impossible task at times, it is important to remember that there are steps that your clients can take to speed up the debt repayment process. So, let us discover 3 tips that can help your clients to get out of debt more quickly.
Encourage Your Clients to Gather Their Data and to Create a Budget
If your clients do not already have a budget in place, then now is the perfect time to establish where they stand. In order to get a complete picture of their personal finances, your client should start by compiling their most recent bill statements for all credit cards and loans, their credit reports, and their credit score. From here they can work out how much they earn so that they can determine how much money they can afford to spend. Your clients should take note of any fixed expenses such as mortgages and car payments and then factor in any variable expenses such as groceries and entertainment.
By subtracting these expenses from their income, your client can then determine their discretionary allowance. A portion of this amount should be allocated towards paying off their debts to you each month. If this amount currently equates to zero, then your client is spending more than they can earn and therefore it is vital that they make some lifestyle changes to comfortably pay off their debts to you while still meeting their other financial obligations. Just remember that you might also need to take into consideration debt collection state laws when making these calculations.
Set Up a Debt Repayment Plan
Provided that the budget created by your client allows for adequate discretionary spending, you can both begin to work on a debt repayment plan. Good debt payment plans help people to boost the money that they are currently paying towards debts while speeding up the time it takes to eradicate these debts completely. Your client should start by compiling a list of all outstanding debts and the monthly payments on each. These debts might be related to mortgages, cars, student loans, or credit cards. A total amount that must be paid each month can then be reached. If your client can only pay the minimum amount it will take longer for these debts to be paid off.
Identifying and prioritizing debt can help to identify which debts are the largest so that your client can track their progress and feel more motivated to continue repairing their finances. If it is possible to make any extra or early payments, this can sometimes prove to be beneficial so be sure to inform your client about any extra payment policies in place. Again, if the amount that is owed is more than their discretionary allowance, your client will need to cut down on their spending or add to their income so that they can make larger or more frequent debt repayments.
Suggest Ways for Your Clients to Earn More Money and Spend Less of It
It might seem intuitive, but if your client can pay more than the monthly minimum on their debt repayment plan, they might be able to pay off their debts earlier than planned which is advantageous for both parties involved. Just be careful to check for any prepayment penalties and be sure to identify whether or not these payments go towards the principal debt or the interest accumulated. This same principal can be applied to most types of loans, so if your client is paying off debts related to a mortgage, a car loan, or home equity, paying off debts earlier than anticipated is usually rewarded.
Furthermore, it is no secret that if your client wants to get out of debt as quickly as possible, then earning more money, and increasing their debt repayments, can make a huge difference. Ideally, a raise or a new job might be on the horizon. However, starting a side hustle or taking on more hours might be all it takes for your client to improve their financial situation. Nowadays, there are plenty of websites and apps that offer seasonal work and other freelance job opportunities so do not be afraid to point your client in those directions if they seem capable.
Ultimately, there is no denying that carrying debts for a long period of time can leave anyone in a financially vulnerable position. Above all by gaining control of their finances and rebuilding their wealth through a viable money management plan, your clients can use new strategies to tackle their debts and boost their existing wealth and earning potential in the process.
Aside from paying off debts, there are other steps that people can take to improve their money management skills. To learn more, check out these 3 easy ways to boost your personal finances.