7 Tips for Creating a Get Out of Debt Plan
Getting out of debt doesn’t happen by accident. You have to be proactive about it and take immediate action.
The reason millions of people get mired in debt and can’t seem to escape its clutches is because they ignored the problem, either because they were worried or they thought it wouldn’t matter.
Well, it does matter…and when you don’t pay up, you’ll find out how much it really matters. You can end up losing everything you own if debt is left to escalate out of your control.
The good news is that you can arrest debt in its tracks and remedy the problem, if you have a solid get out of debt plan.
Use these 7 tips for getting out of debt…
1. Make a list of your debts TODAY
Like management consultant, Peter Drucker, once said, “What gets measured, gets managed.”
Do not try and guess the amount or attempt to do mental math when it comes to debt. You want accounting down to the last penny.
Write down the outstanding balances you owe on all your credit cards and loans and whatever else you owe. Also write down the interest rate next to each balance.
For example, if you owe £3,500 on a credit card that charges 14% interest on your outstanding balance, this is what you’d write – £3,500 (14%).
Now you’ll know exactly where you stand as far as your total outstanding debt goes.
2. Make a budget for yourself
The next thing you’ll need to do is write down your disposable income. How much money do you take home after taxes?
This is the most important number. Based on this number, if you covered the bills and your needs, how much money would you have left to pay the bills?
Sometimes, you might wish to take a second job to earn more just to slash your debt faster. Whatever the case, now you know exactly how much cash you have to manage your debt. The number may be scary, but it’s important.
3. Do NOT incur more debt
It’s obvious, but needs to be stated – don’t take on more debt.
Don’t make impulse purchases just because you’re unhappy and want to feel better. The happiness won’t last. You’ll only end up feeling worse.
If you truly want to be happy, become debt-free and you’ll feel a weight off your shoulders. When you don’t have new debt coming in, clearing off old debt becomes easier.
4. Call your creditors
The next step will be to call the different banks and/or credit card issuers and negotiate for lower interest rates or lump sum payments, etc. It all depends on your bank and the situation you’re in.
But if you show that you’re willing to pay off the debts, most financial institutions will try to make things easier for you.
Note: be very wary about debt consolidation or balance transfers. Attractive rates may come with hidden fees…and the rates may suddenly jump in future.
In many cases, you’ll be better off paying off each outstanding balance on its own.
5. Eliminate non-essential spending
It may be tough in the beginning, but if you truly want to make a dent in your debt, you’ll need to reduce your expenses.
Eat home more. Cancel unnecessary subscriptions. Shop less. Use coupons. Have 2 ‘no spend’ days a week. And so on.
Do whatever you can to eliminate unnecessary spending, and use the extra you save to pay off your debts.
6. Choose a debt-repayment method
When it comes to paying off debt, you can either go with the ‘debt snowball’ method or the ‘debt avalanche’ method.
The ‘debt avalanche’ method is better but requires more discipline. You’ll be paying the minimum on all of your cards/loans except the one with the highest interest rate.
You’ll pay the maximum amount you can on that debt. Once that debt is paid up, you’ll move on to the next highest interest debt.
With the debt avalanche method, you’ll save time and money (interest) in the long run.
With the ‘debt snowball’ method, you’ll pay off the smallest debt first. You won’t be concerned about the interest rate here. Once that small debt is paid off, you’ll move on to the next smallest one and so on.
This method will make you feel better because you can see your debts being wiped out, but it will take you much longer to pay off all the debt and you’ll end up paying more in the long run.
Either way, choose a method that works for you and apply it assiduously to reduce your debt.
7. Track your spending
Last but not least, write down your expenses daily. This may seem extreme, but it will hold you accountable.
Find ways to save money wherever you can. You can cut yourself some slack once the debts are paid up. For now, tighten your belt and fight the good fight.
With time and persistence, you’ll pay off all your debts and feel a weight off your shoulders.
Create a solid plan and work the plan daily. You’ll get there in time to come.
“Debt is the slavery of the free.” – Publilius Sirius
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