Being in debt comes with a lot of things, from self-denial to being overly worried about the whole situation. The truth, however, is that being in debt is not the end of the world. It is not impossible to be debt-free, but only if you are ready to do what it takes.
If you are confused about how to get started, check out the following five proven debt management tips;
1. Be clear about the numbers
How do you pay off what you don’t know? The first step is to know how much you owe. Do not work with rough estimates; in fact, you may be surprised when you eventually get the actual figures. With the exact figures known, it is easier to manage the debt and craft a feasible repayment plan.
Ensure that you know the exact amount of each debt, not just the total. For instance, how much is your car loan, student loan, mortgage loan, or credit card debt? Once you know this, find out the interest rate for each and include it on the list. To get the exact figures, check your financial statements from credit card providers, lenders, or loan servicers. Your credit report also contains detailed information about the numbers and the loans you have.
2. Start with the debts with high interests
We mentioned knowing the exact interest rate of each loan earlier, and this is where it comes handy. The highest-interest debts will most likely be your credit card debt. So, why should you pay it first? The answer is simple: the longer the loan drags, the more interest you incur. So, clearing off such debt will help you save money on interest and add the same to your principal balance.
This rule follows the avalanche method, which requires you to pay the minimum on all loans while paying more on the loan with the highest interest. Once this single loan is paid, identify the next loan with the highest interest rate, and make it the priority. Continue like this until you have paid all the debts. Although it will take more time, you will definitely save more money.
3. Commit any extra money towards debts
If your income just increased for any reason, ensure that the extra goes into paying off your debts. This move should not be a problem for your finances; after all, you never expected the extra money. Alternatively, you can make bi-weekly payments on your student loans. Student loan interests add every day, so when you do the payments twice a week instead of once a month, the interest is lesser.
Overall, bi-weekly payments as well as committing extra cash to debts will ensure that you pay up your debts faster.
4. Reduce your spending
The common advice to someone who wants to shed weight is to eat less or eat healthier. Similarly, if you are looking to reduce debts, then you should spend less or spend only when necessary. For instance, you can pause your credit card spending, especially if it is your biggest source of debt. Using your credit card will mean more expenses and ultimately more interests.
Spend more cash instead of swiping around. This means you do not get to spend what you do not have. This will help you to appreciate money more and spend only when it is absolutely necessary. Not only will your spending be under control, but also your debt will not increase.
5. Identify the root cause of your debt
Every debt has a root cause. Identify this root cause is the first step in addressing the menace of debt. This may be educational expenses, overspending due to low income, or shopping addiction caused by depression, loneliness, or boredom. Whatever it is, take your time to look deeper and find out what the root is.
Ask yourself, “how and why am I in debt?” Identifying and addressing the cause is the only way to avoid repeating such mistakes. After all, how do you proffer a solution to a problem without knowing its cause? After identifying the root cause, come up with the right solution.
For low-income earners with high credit card debts, the ideal solution would be to look into side hustles or businesses as well as demanding higher pay at their work. If the problem is shopping addiction to stay in-vogue or on par with celebrities, you need to look closely into your obsession.
You are a step closer to paying off your debt and staying debt-free once you know the reason you are in debt.
Conclusion
Note that paying off your debts will not come easy. However, nothing beats the freedom that comes with being debt-free. You stay happy and satisfied, knowing that nothing else is taking away your income apart from your everyday expenses. You will not only save more but also stay financially fit and independent.
Feel swamped in debt and not sure how to get out of it? Our Trainers can help you come up with a plan to get out of of your debt! Schedule your free call to start!
