It doesn’t matter how you got into debt. You might have some bad habits. Perhaps you didn’t prepare and safeguard your finances enough. Perhaps a crisis struck and you had no opportunity to protect your money. Whatever the cause, the reality is that being in debt is a dangerous situation to be in. The longer you keep it around, the worse it can get. But you can claw yourself out before the spiral pulls you too deep. All you have to do is relax, plan, and commit.
Know your assets
Alright, it’s time to stop procrastinating and ignoring the issue. If you want to get into a better financial position, you need to know all the gory details about just how bad things are at the moment. The best way to do that is to find out exactly what your net worth is. That means calculating all your debts and loans, all your liabilities. Then you need to look at all your assets. This means your home, your car, your most valuable possessions, all your accounts and what’s owed to you. If your net worth is still in the positives, then you know that should worse come to worst, your assets will cover all your liabilities.
Budget like a boss
If you have a steady income of any kind, now is the time to get strict with it. A budget doesn’t just tell you how much you spend, it helps you figure out how much you should. Calculate your essential expenditures and set them aside. The bills, the mortgage, all the things you have to pay. Then take a significant portion of the money left over and set it aside for debt repayments. The more you can afford to spare, the better. This is what you pay towards debts as soon as it hits your bank account.
Tackle the big and little things
A lot of guides will tell you to try grocery shopping at other places, to negotiate down your bills, and cancel subscriptions you’re not using. These are all wise decisions, but if you want to significantly increase your debt repayment fund, you’re going to need to reduce the big expenses, too. For example, looking at your car, you might want to trade your car in for one that’s more efficient and has lower emissions, even if it’s not as flash. Or you might consider shopping around for a different insurance deal. You can even pay lower premiums with the agreement that you pay out more upfront when you’re making a claim.
Directing your funds wisely
When you have money set aside, you need to decide where it’s going. All debt repayments that have minimums need to have their minimums met without question. But you should direct the rest you have left over to one debt at a time. Prioritize, so you can eliminate one debt wholesale before moving onto the next. It’s a good idea to tackle those with the highest interest first. That way, you have less money in total to pay out.
Shuffle your debt around some
That said, there might be a way to curb the risk of interest growing too large to handle. Debt consolidation and debt relief loans can be a wise choice, but you need to look at the terms of the agreement carefully. How does it benefit you? Does it put a cap on the interest? Does it make your monthly payments more manageable? Does it give you more time to pay? If the answer to those questions is ‘yes’, then you should consider it.
Close your credit cards
Debt consolidation is like controlling a fire. Using a credit card to pay off debt is more like fighting fire with fire. It’s only kicking the can a little further down the road. You’re going to have to pick it up eventually. If your credit score is low, then you might only be making your interest rates worse. We know that it looks like a viable option when you’re panicking, but you need to resist the urge to use open lines of credit to fight debt unless you’re 100% sure it’s benefiting you by making it more manageable in the long-term. The best way to resist that urge is by closing any credit cards that are yet unused.
You need to celebrate every little victory, whether it’s closing one debt or reducing the overall amount you have to pay. It means you’re one step closer to freedom. Take care of yourself and remember that debt can happen to absolutely anyone. Money stress and lowered self-esteem are real issues, so be kind to yourself. You’ll feel all the better for it when you make it back to the top.