If you’re in debt, you’re probably looking for ways to get yourself out of it. There are many ads on TV and the internet that promise easy systems to become debt-free. Keep in mind, though, if something sounds too good to be true, it probably is. The only way to get out of debt is to learn how to manage your money correctly.
Figure Out Your Spending Habits
Tracking your spending is the first step to getting your financial life back on track. If you use debit or credit cards for almost all of your purchases, you can look at online or paper statements.
Cash users will have to record their spending for a month to get a good idea of where their money is going. Track everything, even if you only spend $0.30 on a pack of gum. Sort every purchase into a different category – the more specific you are, the better.
Create a Budget
Even if you already have a budget, start again from scratch with your new information. If you find that you spend more than you make, you have two options: spend less or make more.
In the interest of getting out of debt, you should probably work on spending less first, then if you choose to get a second job, you can put all of your extra money towards repaying what you owe.
Also, don’t spend over your budget at all. Many people have a flexible budget – if they don’t have enough money to buy cleaning supplies, they’ll take some money out of the grocery budget. Don’t do this.
Once you’re out of money, find a way to make do until you get paid again. Any extra money at the end of a pay period can be put toward extra debt payments.
Talk to a Professional
If you just plain don’t have enough money to get by no matter how you arrange your budget, talk to some financial professional about personal bankruptcy. Sometimes it’s not possible to make ends meet, and it’s better to admit this than it is to not have enough food or have your house foreclosed.
You don’t need a fancy plan from a financial guru to get out of debt. All you have to do is find a way to make more than you spend – simple in theory, difficult in practice. If all else fails, ask a professional for help.
Read also: Tips for Managing Your Settlement Money
Tips To Pull Yourself Out Of Debt and Stay There
Getting out of debt might seem like a daunting task, but it can be done. With a bit of patience and a lot of work, you can find yourself feeling relief as you eliminate debt and stay that way forever. Below are some tips that will help you pull yourself out of debt and stay there.
1. Do-It-Yourself Debt Reduction
When you take on a do-it-yourself approach to debt reduction, you make minimum monthly payments on all your debt rather than one debt you are targeting to pay off. There are two methods to this strategy: the avalanche approach and the snowball method.
Using the avalanche approach, you first start paying off your credit card with the highest interest rate. With the snowball approach, you start paying off the account that has the smallest balance first. You can choose either way, but once you pay off your first debt, you use that payment amount to start on your next target debt.
2. Debt Consolidation
If you can consolidate your debt, you can get a new loan that pays off all your other debt. You might try consolidating by taking out a personal loan or by using any zero percent credit cards for balance transfers. The only danger is having the new loan make you feel like you solved your problem and then you go back to using the credit cards.
To do this effectively, cut up your credit cards or lock them up in a safe place once you consolidate. If you still need to use your credit cards to pay for everyday items, be sure to use it only for that. Set aside a budget before you go shopping and don’t go over the limit, even if you have the credit card.
3. Credit Counseling
With professional credit counseling, you meet with a credit counseling agency that will review your budget for free and help you with a debt management plan to get out of debt fast.
If you decide to enroll in a debt management plan, the agency comes to an agreement with the credit card issuers to lower your interest rates and cancel any late fees. You only make one payment a month to the counseling agency, and they pay your creditors.
If you decide to file bankruptcy, you should use a trusted law firm to make sure you are abiding by all the bankruptcy laws. When filing a Chapter 7 Plan, you eliminate most of your debt quickly.
When filing a Chapter 13 Plan, you eliminate debt in approximately five years. If your income has been severely reduced and you can’t make all your payments any longer, talk to a professional to discuss your options.
It’s important to remember that this is not always the best solution to debt. Filing bankruptcy will largely depend on each situation, so be sure to get the advice from professionals to decide if this is right for you.
5. Debt Settlement
If your credit balances are so high that you can’t pay them back in five years or less, you should consider negotiating settlements with the creditors. When doing so, the collector or creditor agrees to take less money than the balance you owe to fully satisfy your debt.
This is a great option for many people, but most don’t know that this option exists or how to go about it. Get the advice from professionals if needed and see what you can work out.
No one likes being in debt, but when it becomes overwhelmingly stressful, you must do something about it. Consider one of the above options to eliminate your debt permanently.
With the economy continuing to throw fits, more and more people are finding themselves struggling with debt. Arguably the worst thing about being in debt is that it’s incredibly easy to get into and yet incredibly difficult to get out of. And despite the fact that its only money, those figures have a way of preventing people from getting the most out of life.
Should you find yourself getting deeper and deeper into the hole, the first step to take is to decide that you’ve had enough. The second step to take is to make some serious lifestyle changes. Here are eight tips for getting out of debt.
6. Calculate Exactly What You Owe
Most people in debt have a rough idea of what they owe but not an exact one. The first thing to do is, therefore, to establish exactly how much you owe and to who. Make a list that includes the following
- Every creditor you owe money to.
- The exact figure that you owe to each one.
- How much interest you are paying on each debt.
- The cost of late fees and additional charges on each debt.
- The amount that you owe to everyone in total.
7. Get Motivated
If you’re in debt, you obviously want to get out of it but have you ever listed the reasons why? Getting out of debt isn’t easy and it will require that many sacrifices be made. To help you get motivated and stay motivated to make such sacrifices, make a list of reasons why your life would be better if you weren’t in debt.
The primary disadvantages of being in debt include stress, the strain that it can put on relationships and how difficult it can make it to do what you want in life.
8. Set Small, Realistic Goals
If you owe ten thousand dollars, your first goal should be to get it down to nine thousand. Large debts can seem insurmountable and it’s very easy to find yourself feeling hopeless. Divide your debt into smaller pieces and try to take it one piece at a time. Over time, those small pieces can really add up.
9. Pay Off the Most Expensive Debt First
If you owe money to a credit card company, they should be the first people that you pay. Take a look at all of your individual debts, find the one with the highest interest, pay it off and close the account. Then move onto the next most expensive debt and so on. You might be surprised to learn how much money this simple strategy can save you in the long term.
10. Look for the Little Things
Take a look at your daily routine and calculate how much you can save each week by breaking a few bad habits. That morning coffee could be costing you a hundred dollars per month. Other frequent offenders include lunches out and drink after work.
When you calculate how much you can save by skipping such luxuries, add that exact sum onto how much you plan on taking off your debt each month.
11. Increase Your Income
Increasing your income isn’t easy, it’s not however impossible. If you’re not currently working forty hours per week, consider any and all options to change that fact. If you’re already working full time, think about taking on an additional Saturday job. It’s also worth noting that turning a skill into a service that you can provide on a freelance basis can be incredibly profitable.
12. List Your Purchases
A common question asked by those in debt is where in the hell all their money goes every month. The easiest way to answer this question is to literally record every single expense as it happens. At the end of the month, you should be able to determine exactly what money is going where. You should also be able to determine exactly how you can curtail your spending.
13. Talk to Your Creditors
Never forget that your creditors want you to pay off your debts. They don’t want you to stop paying altogether and they don’t want to have to hire a debt collection agency. Because of these facts, more often than not, they are pretty easy to negotiate with.
14. Evaluate Your Income (In-Flow)
Evaluate your income. Write down how much you are earning in a month. Make a list of all your earnings; include all your income and earnings whether they are substantial or very minimal.
15. Evaluate Your Expenses (Out-Flow)
Make a list of all your expenses. Write down, in details, where and what you spend your money on. It is best that you do this systematically by classifying or categorizing your expenses into the following: Food; Utilities; Education; Transportation, Recreation, Personal, etc.
Be sure to include the corresponding amounts. When you’re done classifying your expenses, determine which of your expenses is incurred through debt and which is incurred by cash. When you are able to do this, you will then have a picture of your financial standing.
At this point, you will have an understanding if you are spending within your means or if you are spending beyond your means.
16. Make a Monthly Budget
Now that you have a clearer view of how much you are earning, prepare your monthly budget based on your actual income. The practice of budgeting will allow you to take control of your finances. Seeing how much your income is and knowing what you can and cannot afford will ultimately help you make wise spending decisions.
17. Set Aside an Amount for Debt Payment
Every month, when you receive your pay, make sure to set aside an amount for debt payment, and pay your debt! You don’t have to pay off everything all at once unless you can afford it. What’s important is that your debt payment is regular, even if it’s just minimum payment.
18. Avoid Getting Into Debt Again
Living a debt-free life is still the best, and the only way to do this is to live within your means. If you really want to buy something, save money and when you have saved enough, then that’s the time to buy whatever it is you want.
19. Understanding Your Debt
Creating a debt plan requires at least a basic understanding of personal finance. Debt consists of two amounts: the principal amount and the interest.
The principle is the amount that the borrower received on the loan and the interest is the amount that is paid to the lender based on the amount of time that the principle is borrowed.
20. Large Debt Vs Small Debt
When you have a large amount of debt, especially high interest debt, you may find that most of what you are paying each month is interest. This is bad because until you knock the principal amount down to size your debt will weigh heavily on your finances.
Reducing the principle is easiest on smaller debts because you are paying less interest, so it is easier to pay more off the principal.
21. Getting Started
To get out of debt you need to start by taking inventory of the income and expenditures that you currently have. Your smaller debts and particularly high interest ones should be first on your list to be paid off. Try to find a spare dollar here and there – pay as little as you can on larger, lower interest debts and try to attack those small debts first.
Once the smallest debt is gone use the money that would have been used to pay that loan to pay the next smallest debt. Continuing this pattern until each debt is paid is called a snowball technique because as each debt is paid and its expected payment diverted to another bill the amount able to be paid monthly increases.
The great thing about smaller debts is that you are paying less interest, so you can make a bigger impact on the principal – which means you can pay them off a lot fast just by putting in an extra bit in each payment.
How many people really need a 4,000 square foot home? How many really want to pay the mortgage that such a home requires in most locales? Those who have a massive home that is more than they need can hopefully sell it at cost or for a small profit and then use the equity to buy a smaller home that is more affordable.
The lower monthly payments can go a long way to improving a family’s financial situation. A home is not the only way to downsize.
Instead of taking an annual vacation to Europe, a road trip in the US will be much cheaper in most instances. Instead of getting a large SUV, a smaller minivan might save money on both the monthly payment and fuel expenses.
23. Establish an Emergency Fund
Every family will have an unexpected expense at one point or another. A dryer can go out. A roof can start leaking. It is necessary to pay these expenses, otherwise, you’ll have to deal with a serious disruption to your life. Those who have an emergency fund are usually able to pay cash for the emergency expense.
Those who do not usually go to the credit card and go into debt. The expense will then cost more than it normally would. Most experts recommend an emergency account of at least $500 to $1,000 to take care of these expenses. After paying a bill, it is then important to build the fund back up.
24. Avoid Using Credit
Many people get into trouble because they pay for impulse buys with a credit card. Buying items only when cash is available is a good way to make sure that one stays out of debt.
Many times, those who have to save for a new tablet will make do with their old laptop and not wind up spending the money at all. Credit cards are good for paying for online purchases, but should only be used if there is money to pay off the amount each month.
A bad turn in the economy can lead to massive job losses. Those who prepare and those who downsize their lives will be able to weather the storm much easier than those who have gone into massive debt to keep up with the Joneses.
Cash-only purchases can save many thousands in interest payments and keep a family’s finances from falling with the stock market. If you find that your bad investments have caught up with you in the rough economy, you can contact a bankruptcy lawyer in Tampa for help.
Please understand that this process usually takes time and dedication to complete. It is difficult to sacrifice extra money each month to debt payments and it is even more difficult to continue paying old debt amounts on new debt once the old debts are closed. Just remember that this method is the fastest for reducing debt and that the benefits of being debt-free are worth the rough living today.
Debt is a slave driver because interest never sleeps, so avoid debt as you would avoid plague and illness.