The ‘ostrich effect’ is a financial term which is often used to describe the act of pretending a monetary problem does not exist: “burying one’s head in the sand” to hide from a problem. Contrary to the popular myth, the ostrich does not, in fact, bury its head in the sand, neither to hide nor anything else. Yet thousands of people in debt choose to bring the myth to life, ignoring their debts in the hope that they will magically disappear.
No such luck. While ignoring a debt may ease the worry in the short-term, eventually it will come back to haunt you. The longer a debt is active, the more it ends up costing you in interest and other fees. Some lenders will charge a set fee for each late or missed payment (such as charges on a credit card), your bank may charge you for a returned direct debit payment, and you may end up paying a higher rate of interest if you consistently miss payments. All in all, what starts as a small, manageable debt could easily double or triple if ignored.
It may not be something you want to do, but taking stock of your financial situation is extremely important, especially if you suddenly find your debts mounting up. The sooner you deal with them, the easier it will be.
Find out exactly how much debt you’re in. Getting copies of your credit reports from various credit monitoring agencies will help you do this, and filling out an income/expenditure sheet will give you an idea of your current financial situation.
It may be possible to reduce the level of debt you’re in. Contact all the companies you owe money to and see if you can come to some arrangement with them; a lower monthly repayment perhaps, or a freezing of interest until you’re back up to date. Most creditors will be happy to help you if you’re honest with them from the start and they can see you genuinely want to pay them back.
If you have several debts from different creditors, prioritize them. List your debts in order of interest rate attached, from high to low, and aim to pay off the highest interest debts first. Doing this could reduce your debt significantly and save you a massive amount in interest fees. On smaller debts, or ones which haven’t got a long term left, it might be worth getting a settlement figure and seeing if you can clear it in one single payment.
If you feel you can’t manage all your debt alone, or have had no luck when contacting creditors, it might be time to consult a debt management company. These specialist firms will contact your creditors on your behalf and negotiate an affordable payment plan which suits everyone. They tend to hold more weight than an individual so they can sometimes get you better terms.
No matter what your level of debt, there will be help available to you if you only take the time to look. A debt consolidation loan may be something to consider; especially useful if you manage to negotiate lower settlement figures with all or most of your creditors. But whatever debt solutions you choose, you’ll feel better in the knowledge that you’ve dealt with your debt.
