Managing your expenses isn’t a piece of cake, especially when there are several loans on hand. There are people that lack responsibility and let their indifference about money drive them into the financial trap. Now the life has turned into a series of endless calls from banks, reminders of payment of debt and constant payments on the monthly installment loans.
Getting out of debt isn’t easy but possible and we are going to tell you how. So, brace yourself and get ready to do the following.
Step 1. Organize Your Debts
Realizing how much you owe is the hardest thing to do. Payday loans, home improvement loans, credit cards… Some people don’t face that big number and just make the minimum down payments every month hoping for this nightmare to end. But to actually get out of debt, you have to know the exact amount of money you owe and do the steps for it to only get smaller.
There are online tools available, where you will be able to put all the information on the credit cards, a total amount of debt and down payments to see the entire gamut.
Step 2. Decide What to Pay First
Prioritizing is the right strategy to gradually overcome the debt. Based on the interest rate, decide what you will pay off first (student loan or credit card).
Look closely at the details of debt contracts. Surely, a minimum down payment taken from your account will not make any difference to your daily budget but eventually, the bank will have you in the debtor’s prison. If you pay more than a minimum (say a 100$), you will be able to actually save money.
Step 3. Don’t Yield to Temptation
If you can’t control your expenses and start showing shopaholic symptoms, just get rid of your credit cards. A popular financial advisor and writer Ramit Sethi suggests putting all the credit cards into a bowl of water and freezing it. This will give just enough time to reconsider your money habits when you feel the urge to spend.
The method may sound silly, but it will surely keep you from spending more. The stress caused by budget and spending habits is probably the main reason why couples argue about money, so you may try using this method.
Step 4. Agree On a Lower Interest Rate
Most people don’t know this, but you can actually ask for a lower interest rate from the bank. A 5-minute talk with a bank manager will save you thousands of dollars in perspective.
Do this by revealing your plan to intensify your efforts towards paying off your debt and ask for a lower interest rate. The secret is to show that you are aware of the credit card debt details. Show your loyalty to the bank and see if they are able to provide a reduced APR.
If having succeeded with the previous task, return to step one and make adjustments to your debt chart.
Step 5. Decide Where the Money will be Coming From
If you have done the step 4 right, you already have some amount of money to cover the debt. You can always look for more ways to earn extra money or you can dig into the hidden income. By cutting expenses on the cell phone, your car insurance or other monthly expenses, you will be able to save another thousand dollars every month.
Moreover, there are good money habits that you can develop not to end up in debt in the future.
- Stop borrowing money.
- Set up an emergency fund of 1000$.
- Make up a budget and stick to it.
- Don’t waste money on unnecessary things. Put it all into debt repayment.
- Put any extra cash that you can get into eliminating your debt.
- Don’t neglect saving money.
- Use every opportunity to make money.
Don’t waste any time. The faster you decide to get out of debt, the faster it will disappear. Follow the above steps and free yourself and your family from the debt. In addition use this challenge and this opportunity to get knowledge about managing your accounts, budgeting, and saving. This is the skill that will repay hundredfold in the future.