Being in debt can be frustrating. Even not having the flexibility you want because you have to pay something consistently, time and time again. Here I have made a list of ways and steps to get out of debt.
1. Be motivated
Financial stress can affect your health and limit your ability to think clearly. Commit to changing your life.
2. Pick a Reward to Get Out of Debt
Post a picture of this reward on your refrigerator door. You must have something to look forward to that will stimulate and excite you (be reasonable, a local vacation may come later).
3. Find a friend It is more difficult to do it yourself.
Ask a close friend, co-worker, family member, or other person in the business to run weekly checks with you to give you some responsibility.
4. Establish an emergency fund
If you've set aside $1,000 yourself, you can't count on credits when unexpected expenses arise. Then you should consider cutting your credit cards and lowering the limit when you withdraw your credit cards. From then on make purchases by cash or EC card only.
5. Make a list of all your debts.
Include details to whom you owe money, what the money was spent on, amount you owe, current repayment amount, interest rate and last payment date. This will help you know where you stand so that you can take the following steps to help settle your debt.
6. Negotiate Your Payments
Visit or call your credit institution and say you are looking for a better deal and ask what they can offer you. If you are not satisfied with their answer, simply state that you are "looking to pay off and close your credit or credit card accounts". Then they will start offering you better deals. If you are facing financial difficulties, do it well in advance as your lender may be able to give you relief. You may be able to negotiate repayment plans with lower interest rates and repayment amounts.
7. Consider Collecting Your Debts
If applicable, consider consolidating many small, low-interest debts into one large low-interest loan. It could be a personal loan or your home loan. You may want to consider requesting a 0% credit card balance transfer offer to save interest. Most banks offer them, but keep in mind that not all credit applications are listed in your credit history and affect your credit score.
8. Look for ways to cut costs.
Negotiate better deals on essential services like phones and electricity. Also, think about other costs like cancelling non-essential subscriptions like Netflix, Foxtel, etc.
9. Automate Your Recreation
After minimising your trips, you can make your recreation easy and automatic. Include paying off your debts in your budget as an expense that you should set aside with each payday. It is advisable to have these transferred to a separate “Invoices” account.
10. Try to make some extra money.
Think about selling what you don't need. It's not uncommon to save more on interest than you lose by selling something at a loss, so keep this in mind. Use the proceeds of what you sell to pay off your debts at the highest interest rate. Also, look for ways to generate more income. Some ideas include starting boarding school, working overtime or shift work, finding a second job, teaching in an area you're good at, or even making strawberry jam for sale in local markets. Be creative and you could increase your income.
11. Create a debt settlement plan
Two common payment plans are often recommended: the snowball and the avalanche. Let's see how these work.
With the snowball method, you invest excess money to pay off your smallest debt first and then, when that debt is paid off, add that payment (or snowball) to the next smallest debt up to let it be paid. Continue this process and add the repayments of the discharged debts to the next lowest debt until all the debts have been paid.
The avalanche method involves injecting surplus cash into the repayment of the highest interest rate debt, and when the debt is repaid, it adds the repayment to the next highest interest rate debt until it is repaid. Continue this process and always add payments from the repaid loan to the next highest interest rate until the repayment is complete. The two methods are very similar. The difference between the two is whether you should work on the lowest debt first or the highest interest rate debt first. Mathematically solving the highest interest rate debt problem will save you more money in the first place, so the avalanche method is the financially best option and my preferred option. The Snowball Act has emotional benefits that are believed to outweigh the economic benefits.
It's important to do something special every time you accomplish a goal (e.g. make sure to add the full amount at the highest interest rate to pay off your debt afterwards.
0 Comments