The interest on your principal amount can make the payments, scarily high. Even if you follow the strategy of paying the minimums, it takes years to finally get rid of that balance. In addition, high levels of debt can put your access on a leash to additional credit, whether it’s for a new house or getting a new car.
The sad reality is that erasing financial problems isn’t possible in a snap. But that doesn’t mean there’s no solution for it.
Yes, you heard it right.
Your best chance to get out of debt faster is by creating a strategic plan, in which you need to reevaluate your spending habits while setting up required financial goals.
Let’s take a look at the following steps to learn how.
Simply Stop Spending
Whether you had blindly used your credit cards or had an incapacitating illness that made you stay away from work for a while, all that matters now is that you are under debt.
Regardless of the reason, the right thing to do is stop spending money in order to get the finances back on track. This may sound easy, but believe it or not it’s quite a tricky thing to do, which requires a major mindset shift.
It doesn’t mean halting purchases, but you need to recognize the difference between your wants and needs. Yearly vacation is something you want (avoidable), whereas, buying the groceries is your need (non-avoidable).
Of course, maintaining a limit for grocery shopping is also mandatory.
This means to get out of your debt, you have to channel every extra dollar towards paying off the balances.
No more dining out just because you don’t want to cook, no more snack runs at rest stops, etc. You need to understand the fact that small expenditures have the same tendency of leading to recurring debt just as much as the bigger ones do.
So, put a curb on both and pay everything off.
Avoid Future Debt
Making plans for conquering your debt will be of no use if you keep on adding more to what you owe at present. In case you are unable to stop your spending, then try to eliminate the temptation completely.
Don’t shy away from hiding or cutting up your credit cards if you feel the need. Apart from this, make sure to remove your credit card information from the websites you mostly shop at.
After controlling your day-to-day urge to spend, you still need to take care of the unforeseen expenses, such as a visit to the doctor or a bill from the mechanic. How?
Create an emergency fund with a minimum of $1,000 to safeguard yourself when you have a last-minute bill to deal with. Otherwise, the only thing you’ll be doing is gathering new debt just as you pay off the old one.
Trim Your Budget
To realize the depth of your debt situation, all you need to do is go through all of your bank and credit card statements and see where and what you have actually spent your money on.
You’ll most likely be stunned to see how rapidly petite purchases add up over a month.
What to do?
Search through your previous statements to pull out all the essential payments or purchases, such as the mortgage or rent, your utilities, etc. From there, you can see where you need to cut back.
If seems fit, you can set up the option of autopay for your bills on your payday, and also use assigned envelopes of cash to fulfill your gas and groceries related needs.
Once you are out of cash, start digging in the pantry and be creative in the kitchen.
Set The Priority of Cards
To pay down your debt fast, you need to pick one credit card to focus your main efforts on. So, how to decide which one to go for first?
There are several ways to choose, simply pick the strategy that you feel will work for you.
One of the most tried and tested methods is to choose the card that has the smallest balance. This helps you have an easy win while keeping you motivated so that you can move forward with confidence.
On the other hand, if you feel more motivated by saving money, then you can target the card that has the highest interest rate. Thus, you end up paying less in the long run.
Throw the extra money you have towards that one payment you select, rather than distributing the extra payments equally among your outstanding debts. Simply opt for a payoff strategy that will make you move more towards your progress, rather than choosing the one which will make you feel bad about your debts.
Maintain the Minimum Payments on other Debts
Only because you are focusing the extra cash towards that one credit card doesn’t mean there aren’t others that require minimum payments. The agenda of getting out of debt is to free-up some cash while strengthening your credit.
In case you miss the minimum payments, you probably fetch late fees and also go into delinquency on your account.
Once you are 30 days late or more, your credit score starts to collapse. So, keep in mind to safeguard your credit score by paying every minimum payment while beating down your debt.
Lower down the interest payments
Another way to fulfill the goal of getting rid of debt faster is to save money on your interest payments. For credit cards, contact your company and try to make them agree on a lower rate.
It will be an added advantage for you if you are a long-time customer who has never missed a payment.
Consider Balance Transfering or availing a personal loan
You can also take into account the option of balance transferring from one credit card to another with a lower interest rate or in some cases, no interest for a set time period.
Secondly, you may also consider debt consolidating with a personal loan. Many-a-times, interest rates of the loans are way lower as compared to the credit cards.
Conduct the Refinance Option on your Mortgage
If you carry other types of debt, including a mortgage, student loans, or even a car loan, you can surely apply to refinance them in order to get a much lower interest rate.
Even if your key aim is to make extra payments on your credit card debt, you can surely use the monthly savings from other expenses so that to emphasize more towards those elevated balances.
Sell your Extra Stuff
When you’re working so hard to make your debt taste the dirt, it’s also a good idea to get rid of the physical toll that surrounds you. This can help omit the emotional confusion while bringing in extra money to counter those balances.
You can arrange a yard sale at your house or online. You can consider posting items on Craigslist, eBay, Facebook classified groups, etc.
Make sure to keep the prices of your items competitive in order to help move them quickly. While you are more likely to think that your stuff is worth a good amount of money because you paid for it, or still paying for it, many are only ready to pay a portion of the original price when they buy second-hand stuff.
Choose a Side Hustle to Make Some Extra Cash
When you want to earn more money to tackle your debt, you can go for a side hustle in order to offer a hike in your existing income.
Here are a few options that you can consider:-
You can pay your car loan by driving for Uber or pay your student loans with the help of tutoring. Apart from this, you can also freelance, pet sit, babysit, or establish an Etsy shop showing a unique talent.
There are countless opportunities to earn extra cash in exchange for your services. It doesn’t need to be something extremely specialized and it definitely doesn’t have to involve any startup funds.
Simply, play to your strengths in accordance with your network of connections to start earning more and tearing down your debt fast.
Throw any Extra Money Towards Debt
Whether it’s the birthday money or a tax return, you need to keep in mind that the ultimate reward is experiencing financial freedom & security. That’s a lot better than getting a mani/pedi that only stays for a week or two.
So, whenever you receive any surprising money that doesn’t have to do anything with your standard budget, all you need to do is make a payment on your debt. You’ll be happy to see how swiftly those numbers start to fall down.
Learn to Appreciate Simple Pleasures of Life
Remember, most of our collected debt is due to an urge for gaining more stuff — the bigger, the better. You need to recognize the fact of boycotting this mindset of “treating” yourself with a luxurious one-time shopping fling or overdo item.
That isn’t called fixing the debt problem because you’ll always have the feeling of being deprived of something. As an alternative, try to appreciate what you actually have.
Understand the fact that time and relationships hold a lot more value as compared to anything you can charge. Upon realizing that, you’ll see that the real secret behind overcoming your debt situation is knowing that you already own everything you actually need.
What are your thoughts about this list? Do you find anything that you’ll follow? Share your view on this in the comment section.