Debt is a responsibility you can’t run away from. You can choose to ignore it for a while, but it will eventually come back as a bigger burden. So, the only way to get rid of your debt is to face it.
However, digging your way out of debt is not an easy task. It can take a mental toll on you just to manage your income, pay off your dues, and save up for emergencies. Good thing there are plenty of easy ways you can get out of your debt, and this blog will help you get started.
Organize Your Dues
The first step in removing your debt is to get a clear picture of your dues. Start by gathering your bills, loan statements, credit card billings, pending fines, and other documents related to your finances.
You can also list down all your debts and indicate how much they cost. Write down the minimum repayment for each of them along with their due date as well.
This step allows you to see the total cost of your debt and other essential bills. It also helps you start understanding your financial situation, which eventually supports you when you begin your repayment process.
Review Your Spending
Once you’ve laid out all your dues, it’s time to take a closer look at them. Determine which of these expenses fall under your needs (e.g. electricity, water, groceries, and meals) and which of them can be deemed as your wants (e.g. cable, entertainment subscriptions, and expensive hobbies).
Categorizing your expenses between these two classifications can help you make cuts in your spending. Remove things that you believe you can do without and make sure that you can stick to not having them around.
This strategy allows you to free up portions of your income and redirect them to pay off essential expenses, including your debt. It also enables you to develop a practical attitude towards your spending and even helps you save your funds for better use later on.
Make a Plan
The first step to making a plan is setting a goal. In this case, it’s clearing your debt. Next is to consider how you want to pay it off. Do so by prioritizing your dues depending on which criteria are more important or doable for you.
You can choose to settle them based on the interest rate, balance, frequency of the payment, or another factor that is ideal for you. Regardless of the method you choose, what matters is that you stick to it and ensure that you are consistent with your payments.
Consider making a budget plan as well. This initiative allows you to track your expenses and makes it easier for you to focus on your financial goals. A budget plan can also help you set a realistic timeline for paying off your debt, which is important when negotiating with your creditor.
Consult an Expert
If you’re unsure how to make a debt-pay-off plan or implement it, talking to a credit counselor might be what you need. This process helps you better understand your financial situation and discover different strategies for getting out of your debts.
Credit counseling provides you with resources to support you in ensuring that you’re on the right path to your repayment plans. Consulting a credit counselor also gives you a professional opinion when you negotiate with your creditors, though they can’t settle such negotiations themselves.
Additionally, these experts can help you create an actionable budget plan to better prioritize your expenses, manage your debts or credits effectively, and change your money mindset to handle other aspects of your finances.
Start Paying Up
There are two ways you can start paying for your debt: the debt avalanche method and the debt snowball method. These strategies are accelerated debt repayment plans that seek to expedite the process of settling your outstanding balances.
This repayment method entails you only making the minimum payment on each source of debt, while the bigger part of your repayment fund goes to the debt with the highest interest rate first.
When that balance is paid off, you can move on to the next-highest interest-bearing loan. The process will continue until all of your debts are paid off. The debt avalanche is an effective strategy because you will be paying less over time, have lower interest, and clear big debts faster.
However, you have to be consistent with your payments in undertaking this strategy. You also have to ensure that you have enough funds for making large debt payments, daily living expenses, and extra money for emergencies.
This strategy is the opposite of the debt avalanche method. While it still requires you to make the minimum payments on your balances, the majority of the leftover repayment funds will go to the smallest debt.
The great thing about the debt snowball method is that it enables you to clear more debts quickly. It allows you to see a faster payoff, which builds up the motivation to stick to your repayment plan.
On the other hand, it’s not the best strategy to take if you’re worried about interests. The debt snowball method focuses on prioritizing balances over the annual percentage rate, which means your bigger debts will incur more interest. This makes them more expensive and could take longer to settle.
Getting buried in debt will not only affect your financial situation but also your physical and mental well-being. Ignoring it can only do so much, but it’s not the answer to this problem.
The only solution is to tackle this financial head-on. By following the steps outlined above, you can start making your way out of this financial hole and get on the path toward a debt-free life.