Debt feels like a burden hanging around your neck, and with student loans, auto loans, and medical expenses, it all becomes a pretty hefty amount. Learning how to deal with loans and forming strategies for paying them off can help you start managing your debt. Get out of debt bondage and return to the real world, then learn to live debt free.
Step
Part 1 of 3: Making a Plan
Step 1. Evaluate your problem
When you have debt, you cannot be like an ostrich. Don't bury your head in the sand and give up. Immediately, right now, you should know how much you owe so you can make a plan to get out of the debt trap and move on with your life. Be realistic and calculate.
Generally, credit card debt, car loans, home mortgages, and student loans are the largest part of current debt that most people experience. Add up these debts and any other debt you have. Get the numbers and face it
Step 2. Prioritize the debt with the highest interest
Once you've got the raw data, it's important to take a deeper look. Which loan has the highest interest rate?
Part of the reason debt is so hard to settle is that it keeps growing. If you don't pay off quickly, you'll end up paying a lot more in the long run, making it very difficult to get off the ground
Step 3. Make a plan to repay your debt
Thoroughly review your finances, calculate the amount, and see what payment method will be most effective for your situation.
- Try to repay the debt that has the highest interest, meanwhile make minimal payments for other debts. This is sometimes called "laddering" debt, and it helps borrowers feel more active in controlling their debt.
- If the interest rates on all your debts are almost the same, pay off the debt with the lowest amount. This is sometimes called "reverse laddering," which allows you to see your progress more quickly, and will make you feel better after the smaller debt is paid off.
Step 4. Talk to a financial advisor about consolidating your debt
You don't have to go through this alone. Financial documents are very complex. Trying and doing it yourself can be frustrating, but find a financial advisor you can trust and talk about consolidating the loan into one payment each month that is more manageable, to make it easier to repay.
There is also the possibility of lowering the interest rate on certain loans, or requesting a deferral for a short period of time. In some situations, you may be able to defer payments for a certain period of time, during which you will not be accruing interest. During that time, you can repay aggressively without making the debt grow bigger, which is a serious advantage
Part 2 of 3: Paying Off Debt
Step 1. Create a tight budget
Carrying out the calculations necessary to live in your financial condition is not as complicated as it seems. How: Calculate your income every month, then calculate the cost of your needs every month. The costs of these necessities include food, rent or mortgage, bills, and essential payments for the most pressing debts.
- Balance the amount of money that goes into each expense category to try and use as much of your income as possible into the loan repayment categories, so you can pay off the loan faster. Adhere to this budget every month.
- If your expenses are more than your income, you have to do several things. Obviously you have to cut some expenses or make more money. In some situations you can do both. Consider getting extra work, overtime and taking on extra responsibilities at your job, and cut any expenses that can be reduced.
Step 2. Cut expenses wherever you can
Learning to reduce the costs involved as much as possible and save every penny will help you use more money to pay off your loans and get out of the debt circle as quickly as possible.
- Cook your own food. Stop eating out and start buying cheap groceries and learn to cook large quantities that your whole family can eat for less. Fast food restaurants trick people into thinking their food is cheap, but a pot of vegetables, rice and beans is much healthier than a cheeseburger.
- Cut non-essential entertainment expenses. Are Netflix and cable subscriptions really necessary when you live in a city that has a public library? Do you really have to go to a restaurant, club, or music show? Find ways to have fun on the cheap.
Step 3. Pay off your debt in full whenever you have excess cash
Are there any extras in your pay this week? You can spend it all in one night, or you can use it to pay off a loan. Got THR? You can buy lots of gifts or use them to pay off loans. If you want to be debt free, you have to be hard on yourself. There are no additional expenses until you are completely debt free and can pay anything off without falling back into debt. Make a commitment to achieve that goal and work hard until it is achieved.
Step 4. Save anything you don't spend
If you have budgeted correctly and at the end of the month have money left over, save it. It's important to have savings for unexpected needs, emergencies, and other expenses that could sink you back into debt. Having an emergency fund is very important to avoid debt and live debt free.
Make it a goal to save. Even if it's only a few million dollars, taking the necessary action to save instead of spending it, and watching your savings grow can be a satisfying experience for some. Make saving more addictive than shopping
Step 5. If you are entitled to a tax overpayment refund, use it wisely
For some people, taxes are something to fear. For others, taxes are actually an opportunity to earn a little money in the form of a tax return. Those who qualify can get returns of up to tens of millions if they support a family of three or more children. Imagine how much debt you could pay off on a tax overpayment refund. Don't expect big fortunes during tax season, but be prepared to use them wisely if there is one.
Part 3 of 3: Debt Free Living
Step 1. Make a change in behavior
If you want to be debt free, you need to freeze all non-essential expenses and avoid buying things you can't afford. If you can't buy something with cash, today, you don't need it. Stick to the process and journey to stay debt free and enjoy the freedom that comes with it.
Being free from debt does not mean living like a miser. If you want to spend some money on a vacation, or go shopping and be a splurge a few times, go ahead. Just make sure that the expenditure for this entertainment comes from additional monthly income, not taken from funds that have swollen beyond capacity
Step 2. Keep saving
Every payday, set aside some money for bills, food and other necessities of life, and some money for savings. Also set aside a little money for things that are not essential. It's important to be able to buy what you want without going into debt. Keep saving, and paying bills so you can pay off debt.
Step 3. Live happily with what you have
For many people, debt occurs because we think we deserve a certain quality of life. Why don't we deserve the expensive cars, jewelry, and luxury vacations that other people can afford? This kind of thinking is what causes people to sink into huge debts that they have to struggle a lifetime to pay off. Learn to live happily within your means, and enjoy every penny you save, every day you spend not depending on others. Free your life.
Step 4. Stay healthy
Medical debt can quickly plunge a financially secure person into financial trouble. You must eat well, exercise, and maintain healthy teeth to avoid the costly and unexpected costs that come as a result of a health condition. One short trip to the hospital can bankrupt an unprepared person. Don't be one of them.
If you are not covered by insurance, make sure you have affordable health insurance as soon as possible. Talk about insurance options with your boss, or do some research on state insurance options on the market. Having health insurance is essential when a time comes when you need a little help
Step 5. Build your reputation
When your debt has been repaid, the fun can begin. Building a reputation and trying to get a good credit reputation will make spending and credit cards profitable for you. If you can afford to buy something outright, pay with a credit card and then pay it off immediately to help build a credit reputation that may have previously been damaged by the weight of your loan. Take steps to make credit work for you.
Tips
- Don't use a credit card! Serious! The easiest way to avoid debt is to never, never charge anything on a credit card. If you really need a credit card (to "help" get a good credit reputation) use a credit card only for purchases that you can pay off when you use the credit card. Pay off your credit card bill when it is due. Don't let anything increase the interest and certainly don't delay the late penalty, it's just an extra expense. This way you will get a good credit reputation without going into debt.
- Eat at home. This will save you money and you will be healthier.
- Spend as little money as possible.
- Use coupons and shop for staples on sale while you keep the cost of essentials within budget.
- Create a budget plan. Plan how you spend your paycheck.
- Choose a hobby that doesn't involve spending money.
- Save, earn extra income, and try not to spend more than you earn. That way you will be able to get rid of debt faster.
- Use local sites in your city, community or school, where people buy/sell/trade school supplies, sporting goods, household goods and anything else that can save money on items that will only be used temporarily or that your child will only use briefly.
- Try to save fuel by walking, cycling, skateboarding, wherever you need to go.
