Racked Up The Debt? How Can You Get Out Of Debt?
Ever dreamed of being debt-free? Debt can be debilitating both for your financial and mental health. No matter how vehemently you ignore it, it keeps nagging you at the back of your mind and keeps you from being completely stress-free daily. It is important to eliminate or at least cut down on debt and build wealth over time to ensure that we get to achieve our life goals of buying a house or having a worry-free retirement, for example.
Is it possible, you ask, to be completely debt-free? The answer is yes. And below are 5 practical ways:
- Accept The Problem:
The first step is to face your debt obligations and develop a commitment to fulfill them successfully. For many of us, even taking account of our total debt stirs much anxiety. However, imagine all the possible uses of the money that ends up in debt payment. You could be taking that dream vacation or buying that nice jacket from Banana Republic you have had your eye on or quitting your job and starting that business you have been planning for a couple of years.
The instant gratification of buying things on credit is countered by the adverse long-term consequences; a fact that should change your perspective towards using credit cards for luxuries. Commitment to reducing your debt is the first step.
- Make A List Of Debt Payments:
Now that you are committed to reducing and eventually eliminating your debt, make a comprehensive list of all your debt payments. Include everything; House loan/Mortgage, Auto Loan, Credit Card debt, Student Loan, Personal Loan and Loans taken from friends and family members. The total amount should also account for interest since they form a significant chunk of your debt payments and the longer they are left unchecked the higher the amount goes.
- Set Up A Debt Payment Plan:
Prioritize your debt payments. There are several ways in which you set your priorities. One way is to start off with the least amount moving up to the highest one. This helps get the momentum going and build confidence. The second way could be to begin with highest interest rate loan moving down to the lowest one which can help minimize overall interest paid. Not matter what way you choose, making debt payments religiously should be your first and foremost priority.
Set monthly installments in a manageable manner and spread them over a year or two depending on how much you owe. Creating milestones and achieving them will help give you a sense of freedom and motivation to continue.
- Stay Focused
Don’t try to make all debt payments at the same time. Focus on one debt at a time and refrain from accumulating more debt during the period at least. For example, having paid 50% of your credit card loan does not mean you can start spending on the credit card again.
Work on supplementing your income through part-time jobs, savings or investments to keep your everyday finances running smoothly.
- Lower Your Interest Rates
You can work on lowering your overall interest through consolidation of debt. This method entails taking a loan with lower interest rates than credit cards and other loans. You pay off all your existing debt with the loan and then only have one loan to repay. However, using this method to pay off loans needs to be evaluated with meticulousness. Falling into the trap of using credit cards once they have been paid off will result in extra burden and prevent you from being debt-free.
Moreover, consolidation loan might have to be secured with equity such as your home and failing to make a payment in case of secured loan will mean losing your house. Therefore, carefully look for the best consolidation loan plans and try to get an unsecured loan. However, the watch-out in this case is that interest rates for an unsecured loan might be higher diluting the advantage of a consolidation loan in the first place.
Commitment to being debt-free should continue even after you have paid off all your loans. The key message is simple; spend as much as you earn. If credit payment is necessary, ensure that you can pay it in full at the due date. Persistence can make your dream of a debt-free life come true!