Combating debt can be a perilous task. You may not know where to start. You may feel that you have nowhere to turn to. But, you don’t have to be burdened by debt any longer. On the contrary, you can ensure that you are living a debt free life for the long term.
Let’s face it, we all have blips with money, we can lose our jobs or take pay cuts. Sometimes, we have to do this in order to preserve the jobs that we have. In today’s unstable market, we have to ensure that we are doing all we can to remain in employment.
Of course, it may just be that you are not very good with money. If you aren’t great with managing your cash, you may find that you have bitten off more than you can chew when it comes to matters of borrowing.
Whatever your circumstances, it’s time to take a deep breath. Relax. Stop panicking. You can be debt free and live a happier, healthier life style in the process.
Here is your step by step guide on how to get out of debt.
1. Assess. Evaluate. Plan
Devising a military style operation when it comes to your loans is important. You need to take positive steps in ensuring that you are managing and assessing your finances. With this in mind, you need to be honest about what you owe. If you are unsure on how much you owe, don’t panic, this can easily be remedied.
So, as your first move it’s time to start organising what you owe and who you owe it to. Detail your debts, which they are owed to and the interest payments on top of these. Get a pen, use a spreadsheet, and scratch the information into the dirt. However you want to play it, just make sure you are taking notes.
Make sure that you detail your creditor and the APR as a matter of importance. You need to know what you are paying and if you can exceed the minimum payments to ensure that you are beating interest rates.
By the time you have made a note of all of your debts you can now track how much is owed. You may feel a bit queasy after writing all this down, but you will be in a good place to start looking at how to tackle your debts in a manageable way.
2. Setting Yourself Realistic Goals
Throwing money at debts will get rid of them, but if you are sporadically paying your debts off with little end goal in mind, this is not the best use of your time or money. What is more, you won’t get the benefit of paying for your debts.
So, now is the time to set goals. You can then feel a huge sense of pride when you achieve your financial goals.
When you start thinking about your goals, you need to see which debt is more important than another. Prioritising your debts is vital, so go back to your spreadsheet or pad and see what is more vital. Of course, all debts need to be paid off, but by chunking your debts, it’s easier to complete the task of breaking down your finances.
So, look at what you owe. Take a look at how much you can afford to spend on your debt each month after paying for your living expense. It may be worthwhile completing an income and expenditure to assist you with this part of your debt management strategy. Once you have done this, you will be able to see how long you will be in debt for. Use this is a timeline and ensures that you are working to this goal. Make it reasonable and workable. You don’t want to falter on payments.
3. Paying Off Your Balances: Work From High to Low
When it comes to prioritising your debts, you need to figure out what has the highest rate of interest or APR. Usually, overdrafts and credit cards have high rates of interest. With this in mind, you need to start paying back the highest interest rates first this means that you will take advantage of paying off the debts that cost the most.
Make the minimum payments that are required on the rest of your loans and pay back more on the ones that have the highest interest. This means that you can focus on one debt at a time without deferring payments on the others. If all of your debts are exceptionally high, it may be time to consider a debt consolidation loan. This can be a positive route to take to ensure that you are managing your money for the long term. After all, you want to take proactive steps in paying off your debt and this is the best way to do this.
4. Pay Off One Debt, Focus on Another
Okay, so the debt cycle may seem like it is never ending but you need to make sure that you making positive steps to paying off your financial woes. Once you have paid off one debt, you will have more money in the bank. Don’t blow this on rubbish you don’t need. Use the surplus money to pay off another debt. This means that you will make more than the minimum repayments and you will beat the interest. What is more, you can rest in the knowledge that yet another loan is being replayed, but with more money in the bank to do this. Think of this as a snowball effect. The more money you have after paying off one loan, the more money you will have to tackle the remainder of your debts. Now, that is positive news.
5. It’s Time to Let Go: The Big Trade Off
Look at your car. Is it on finance? Do you really need it or is it another added expense that you can ill afford? If your car is on finance, get rid of it and trade it in. okay, no one wants to drive a heap of junk, but you will be debt free more quickly. This is a great way to ensure that you are cutting your costs in the long term. What is more, you will be debt free in shorter time span.