If you are determined to get rid of debt, you will succeed. It’s possible. Zeroing financial obligations, like any big goal, re-quires a clear plan: determine where you are now and think over the necessary steps.
First you need a complete picture of the situation. If you record how much and to whom you owe money, it’s much easier to plan payments. Perhaps, looking at the amount, you will find that everything is not as scary as it seemed.
WHERE TO BEGIN?
1. Admit that you are in debt
Before you take up the technical part, give yourself time to realize that you have debts, but you want to say goodbye to them. Forgive yourself for all rash purchases, late payments and spontaneous expenses. It will hurt at first, but you have to go through it.
2. Create a checklist
Very few people keep records of their debt. Most likely, such frivolity is explained by an unwillingness to feel guilty, but if you do not pull yourself together, it is almost impossible to get out of the debt hole. Create a spreadsheet in Google or Excel and deposit all debts into it. Follow this system: creditor name, interest rate, total balance, loan term (if any), minimum payment. Include student loan, credit cards, and other required payments.
3. Number the debts
When you finish compiling the statement, number the lines in order of priority. This is crucial: you will get a clear idea of where to start and in what sequence to carry out the steps.
HOW TO SET PRIORITIES?
It is very important to understand that there are different types of financial obligations.
1. Divide your debts into good and bad
As a rule, bad debts are reckoning for momentary outbursts: we buy because we want, and not because we need. Although there are extraordinary circumstances, when you cannot do without a loan, but basically it is excess costs. There are three categories of bad debt:
- Credit card debt;
- Car loans;
- Consumer loans.
Good debt is an investment in the future. They are also divided into three categories:
- Student loans;
- Business development loans.
2. Decide which debt to close first
I recommend ending bad debts, be it a car loan or a credit card. Try to pay off loans with the highest interest rate as soon as possible. If there are several credit cards, close the one with the highest percentage. So you save more money.
3. Pay in excess of the minimum
Minimum payments drive you into financial bondage since the lion’s share of the deposit is eaten by interest and commissions. Even a small amount in excess of the minimum will allow you to quickly get out of financial difficulties.
DOWN WITH OBSTACLES AND EXCUSES
Compiling a checklist and prioritizing is easy. It’s harder not to succumb to temptations.
1. Set a reminder
As Peter Drucker said, “you can only control what can be measured.” Debts, as well as the results of the work done, also need to be regularly measured. Start with a weekly reminder: by signal, go to your table and check the balance. Did the numbers increase, decrease, or stay the same? For example, regular monitoring of a student loan is incredibly motivating. Noting how the total amount decreases, you will be more and more proud of yourself. Set monthly and weekly goals to see achievements and maintain momentum.
2. Hide credit cards
If credit card debt has become a major headache, urgently get rid of the temptation: remove credit cards from your wallet. Some people go to extremes and freeze their cards. What for? To gradually break the habit of overspending. In addition, this is an opportunity to think about whether you need a credit card and throw it away after final settlement.
3. Automate all current payments
Willpower is great, but it may not be enough. Automate all monthly payments and live with a clear conscience.
4. Plan ahead
For example, if a friend’s birthday or family celebration is approaching, calculate the likely costs. It may be necessary to cut the weekly budget, take a side job, or even completely refuse the invitation.
A sure way to get out of debt is to sacrifice some habits. Think about how to save money in order to direct this money to more important goals. Here’s how to spend as little as possible:
- Cook yourself and take lunch to work, so as not to go to the café;
- Abandon cable television and go to TV shows;
- Ride by public transport or by bike;
- Reduce the interest rate.
The higher the interest rate, the harder and longer it is to get out of debt. Do your best to get it down.
6. Maintain a high credit rating
You can agree with the bank on the restructuring or refinancing of debt and soften the terms of the loan. But remember, everything depends on the credit history: if it is spoiled, nothing will come of it. Therefore, try to increase your reputation as a payer:
- Never overdue;
- Do not exceed 30% of the credit limit;
- Do not get more than one credit card;
- Limit requests: do not take car loans and do not do expensive purchases in installments;
- Track your credit history through free online services.
7. Double-check card usage rules
Many banks provide a considerable percentage when withdrawing cash and do not take anything when making payments through the terminal: the difference can be huge. In addition, the advance service is very expensive: not only interest but also a substantial commission is charged for using funds over the main limit.
In terms of using credit cards, a preferential interest-free period is often specified (from 30 to 55 days), but if you do not return the money on time, the amount of debt increases instantly.
HOW TO RID YOURSELF OF DEBT FOREVER
Planning, discipline, cost reduction are half the battle. It is important not only to get rid of debts, but never to step on the same rake.
1. Monitor and adjust
Do not let yourself relax. Stick to your anti-crisis program and make changes if necessary. Do not forget about the credit rating. The higher it rises, the more likely it is to refinance on more favorable terms.
2. Earn more
Money can not only be saved. Instead of hunting for discounts or denying yourself a cup of morning coffee, think about how to increase your income. It’s much easier to earn an extra couple of thousand a month than to cut the same couple thousand out of a monthly budget.
Some ideas for extra income:
- Talk with management about increasing salaries or commissions. If it fails, don’t be afraid to change jobs. For example, some companies reimburse training costs;
- Search for a part-time job. You can become a tutor, Uber driver, or take paid online surveys. There are tons of ways to make money in your free time. After all, you decided to put an end to debts, which means that you are more than interested in additional income;
- Create an online business. Many sites and blogs make money on advertising, referral programs and other online services.
3. Celebrate success
Encourage yourself for hard work and discipline, without which it is impossible to cope with debts. Of course, this is not about expensive gifts and entertainment, otherwise you will not budge. But little joys are necessary for motivation.
4. Set new financial goals
If you have a clear plan for overcoming the crisis and you are determined to implement it, everything will work out. Be sure to celebrate your ultimate victory over your debts, but don’t stop there.
Now you can breathe a sigh of relief and focus on your well-being. Set new financial goals to see where to move and to make efforts.
Hooray, you are free from debt and you can finally dream! Imagine where you want to go, what your own home will be like, or save money for a future pension. Above all, make sure your goals are concrete, measurable, and achievable.
If you read to this place, congratulations. Now you only need to develop a plan for quickly getting rid of debts (best of all – once and for all). But remember: fast doesn’t mean easy. It’s necessary to withstand restrictions, to struggle with doubts, to overcome difficulties – as with any great goal.