Are you having sleepless nights because of the debt interest that keeps piling up? You are not alone in this dilemma, but you need to get out of debt fast. It means starting right now. You need to stop borrowing money or swiping your credit cards to purchase non-essentials. Remember, not next month. Not someday. But today.
The key is to create your ‘debt elimination plan’ and stick to it until you pay off the last cent of your debt. It takes a lot of mental and emotional muscle-flexing to change, but putting your mind into action is your initial step.
Living with the lurking shadow of accumulating debt is stressful and can affect your health. And if your well-being is compromised, you cannot work efficiently, which means reducing your earning ability.
Here are the eight most effective strategies to help you get out of the debt trap.
First, know how much you owe. Do not be scared to tally up all your accumulated debts. You need numbers to figure out your debt-income ratio.
For example, your total income is $3,000 per month, and you have $25,000 total debts; your debt ratio is 0.5. The result gives you a benchmark of how much you are indebted.
Don’t despair if your debt ratio is high because there were really good reasons why you got into debt. It may include house mortgage, student loan, medical bills, or job loss. The key here is to make a resolution to stay out of debt from now on.
Now that you know how you spend your money, use the information as a guide when making a budget. You need a budget to account for all your expenditures. Put your budgeting process into writing to make yourself accountable.
The fastest way to get out of the debt trap is to repay it ASAP. It means you need to earn more than you spend or get an extra amount for the debt repayment plan.
You can sell stuff for easy cash, get a second job, or work smart to get a promotion and get a salary adjustment. Consider your skills to earn extra funds at home like web designing, freelance writing, selling old goods, and other side hustles.
The best way to clear your debt fast is to allocate more funds. In your budget, set around 20% of the budget for your debt repayment scheme. You can add more when you earn extra funds.
But there is more than one way to maximize your payoff strategy. One of them is the debt snowball method. It entails making a minimum payment to one of your debts until it is paid. Then, repeating the process to another debt. When choosing which debt to go first, select the one that commands the highest interest rate.
Consider debt consolidation or balance transfer of your loans. Refinancing debt offers quick debt repayment and saves you from paying hundreds of interest fees. You can refinance personal loans, student loans, auto loans, or mortgages. Other attractive ideas are debt consolidation and credit card balance transfer.
Debt consolidation involves taking a personal loan at a reputable lending institution or bank to pay off the other debt. This means focusing your payment on just a single loan. Transferring your credit card balances lets you transfer high-rate debts to a 0% rate deal for 12-18 months. But remember that you have to pay it off in full before the term ends to avoid paying the interest.
If your loans are at the brink of being in default or already are, debt settlement can be a good option. It involves negotiating with your creditors to accept a lump-sum, one-time payment, typically lower than the amount you owe. But it should be your last option because it can impact your credit rating negatively.
It may be tempting to buy something you like, but if it means breaking the budget, learn to say no. You can treat yourself from time to time but remember to spend in cash and not with the credit card in your wallet to avoid the temptation to buy more.
Getting out of debt fast and avoiding the temptation to make new ones are crucial in living a financial-savvy life. You need to focus on eliminating your debts and track down your progress consistently.