A change in the calendar often brings a desire to make an adjustment to your lifestyle. If you’re in debt, your finances might be a good place to make that adjustment. Getting out of debt is a common goal. Many people don’t achieve it. You can be one of those who do, but you’ll need a plan to succeed.
1. Face The Reality
The first step is to face facts. After all, you can’t deal with your current financial situation if you don’t know exactly what’s going on. So how do you deal with your finances head-on? Start by making a complete list of your debts. Write down how much you owe, to whom you owe it, your current interest rate, the due date, and the amount you owe each month. List this information on a spreadsheet, a whiteboard, the back of a napkin, or anywhere you can easily access the information. You need to know how much debt you’re truly dealing with, and on what terms.
The second part of facing the facts is to look at your current income and spending habits. You need to know how much you’re bringing in and where your spending occurs each month. Spend time tracking every dollar, whether you put it on a credit card or pay cash.
2. Develop a Plan for Getting Out of Debt
Now that you have a clear picture of your debts, it’s time to develop your plan for debt payoff. There are several ways to pay off debt. There are many debates over which strategy is best, and the pros and cons of each method. Here is a snapshot of the most common payoff strategies.
Debt Snowball: involves prioritizing your debts from smallest to largest. Pay off your smallest debt first, only paying the minimums on your other debts. Then proceed to the next smallest.
The Avalanche: requires you to pay off the debt with the highest interest rate first. Focus on that and pay the minimum amount on all others. When you’ve paid off that debt, you focus on the debt with the next highest interest rate.
Debt Consolidation: many debts and keeping track of the payments is an issue, you can take out a loan, pay off multiple debts, and make a single monthly payment on the new loan. You can also transfer existing balances to a credit card with a 0% APR promotional period and pay off the debt before the promotion expires.
Debt Relief: If your debts are out of control you may need to take more aggressive action, like credit counseling, a debt management plan, debt settlement, or even bankruptcy.
All of these methods have potential drawbacks, so read up on debt relief options before you commit to any of them. The most important part of paying off debt is to take action. Whatever method you choose, developing a plan and putting it into action is critical to your success.
3. Cut Your Spending
No one said getting out of debt would be easy. To get out of debt you have to be ready to make tough decisions and stick to them. You have to stop spending money you don’t have and apply all available resources to pay down your debt. First and foremost, you must limit your use of credit cards. You can’t get out of debt if you keep piling on new debt. Don’t put anything on a card that you can’t pay off in full on or before the due date.
If you’re in the habit of using credit cards because you don’t have enough money to make essential purchases, work on building up an emergency fund.
Common Ways to Cut Spending
There are multiple ways to decrease your spending, even if you feel your money is already tight and you don’t have any “wiggle room” in your budget. Consider these ways to cut spending.
Learn to Coupon: Gone are the days of clipping coupons, although you can still find paper coupons if you want. It’s easy to find sites online to clip coupons for your trip to the grocery store.
Shop Sales: Grocery stores typically put items on sale every 4-6 weeks When this happens it’s a smart idea to stock up. Focus on purchasing items when they’re on sale and avoid paying full price if possible.
Cut the cord: Entertainment can be a big-time money waster. Look at cutting out cable or satellite charges, even if it’s only temporary. The money you save each month should be put towards debt. You can add the service back when you’re out of debt.
Lower your bills: You may be paying too much for cable, internet, or your cell phone. Most people don’t know that you can call up your providers and try negotiating lower prices. Haggling over bills isn’t fun, and many people don’t want to do it. That’s why there are now companies that specialize in bill negotiation and can help you out for a small fee.
Audit your subscriptions: A $5 per month charge here, a $10 monthly charge there. The monthly subscriptions add up quickly and before you know it, you’re sabotaging your spending. Audit your subscriptions and cut as many as possible. Remember, you can try them again once you’re out of debt.
Find free ways to have fun: Getting out of debt doesn’t mean your life has to stop. There are plenty of free activities to enjoy while you focus your spending on paying down debt. Look for free events such as concerts or festivals. Cutting your spending on expensive hobbies and focusing on free activities can generate money that can help you pay off debts.
Cut out the expensive fast-food and drinks: If you have a fast-food habit (or any other habit similar to this), then it’s time to learn to make it at home sometimes.
If you’re looking for more ways to cut spending, try tracking every expenditure, no matter how small. for a month or more. You’re likely to find significant spending in places you were barely aware of.
Final Thoughts on Getting Out of Debt
Tackling your debt is a three-part process: Understand your debts, make a plan, and put your plan into action. It’s not as easy as it sounds. It takes hard work, persistence, and discipline. But with a solid plan and a willingness to make changes in your lifestyle, your goal of getting out of debt can become a reality. The goal is worth the effort!
Article Credit: https://finmasters.com/how-to-get-out-of-debt/