Being in debt is a very stressful experience. No matter what is your present circumstance, if you sign for a loan doesn’t matters which one, you become obligated to repay the loan along with the interest even if you have a life-altering experience such as job loss, major accident, or even if you have increased expenses due to growing responsibilities.
With the rise in cost of living, many families have felt the lack of income growth. Even in cases where both partners are earning, it can be difficult to make the money stretch till the month end. Whereas sometimes debt can be an unintended consequence of holiday expenditures or it can be because of overspending at any time of the year. On the other hand some debts are genuine to go for such as a home loan or a car loan. Only after you have repaid these in full you get their ownership. So we can say that it is worth to go for such debt because it end up with a thing with you.
People always try to get out of the debt before the tenure period of their debt, but this is not an easy task it requires a proper plan along with a disciplined financial lifestyle. But that doesn’t have to be the case.
5 Simple Steps to Get Out of Debt
Create a realistic Budget and Strictly Stick to it
Budget is the most important and the most “Basic Thing” towards managing your finances. Make a budget according to you needs not according to yours wants. Plan to spend only those things which are important to you and avoid those things which do not affect you and your family. With a budget you can simply analyse your income and expenditure ratio, and identify the unnecessary expenditures and cut them down. This is the beginning and basic step towards your planned financial life. Sticking strictly to your budget is the most important thing. If you don’t stick to it, it is of no use. Sticking to it will move you one step forward towards your goal.
Stop Your Unnecessary Expenditures
Apart from making a budget, analysing your past expenditures can really help you identify the unnecessary spends of the past. Your shopping addiction can be one of them. Shop only when you need it not just because you like it. Whether it is your dress or any other household thing, purchasing things just because you like it will simply add on to your expenses, which you need to cut down. Apart from shopping, search for each and every area where you can save your hard earned money. Stop going out frequently for dinners and lunch. Coffee in coffee houses are so expensive. The cost of one cup coffee in coffee house is that much in which you can get homemade coffee for one week. Reducing these expenses will definitely add to your savings account and will help you to get out of debt before the actual time and prevent future debts as well.
Close Your Credit Cards
Credit cards seem very attractive to use as they allow you to repay the amount in month wise instalments. But are you aware about the rate of interest charged against these credit cards? It is 24% to 40% of the actual amount. So, if you need to get out of your debt you need to close all your credit cards because you can’t resist the temptation to use it and it is possible one day or other you will end up using them again.
But it is also important to have a credit card as there can be emergencies where credit card can help you. So it is advised to have only one credit card and avoid keeping it in your pocket. Keep it in some safe place so that you can’t use it frequently.
Earn More Money
Adding income is the most effective way to change your financial condition. Start this by getting a second or you can say part time job. You can also ask for more hours of work at your workplace itself if your company offers overtime payment. If you’re entrepreneurial minded, you can look for starting a side business which needs less investment. Having more money provides a way to stop the bleeding of money and get you off relying on credit cards to meet your needs. In addition, it will help in paying off your debt, especially if you pay more the minimums on your credit cards. Paying more than minimum amount will protect you from paying exorbitant amount of interest, and it’ll end up by clearing your debt before the payoff period.
Have a plan on- how you’re going to utilize your extra cash in advance, don’t increase your spending to match the increased income level.
Open an Additional Savings Account
Don’t put all your eggs in one basket! Open an additional savings account which should be reserved for either emergencies or a goal like to end a current personal loan or credit card debt. Use this account for all your monthly savings and forget them as soon as you transfer them to this account. Over a period of time, the money saved in this account, will become a significant amount which then can be used to end a personal loan, repay in full any credit card outstanding(s) or act as an emergency fund. Seeing your small savings turn to a considerable amount will give you a boost to save more and be more money wise.
Money requires lots of time, effort and skill to earn. And contrastingly it is very easy to spend. Those who do not save from their income, mostly end up in debts, maybe because of their spending habit or because of any unforeseen circumstance. Being strict with spending and saving money not only helps in avoiding a loan, but can also help in come out of existing debts, should there be a desire. All of the above can help anyone if they are willing to have a debt free life.