With the present economic meltdown in the country, a lot of people are neck-deep in debts. And being indebted is often a stressful experience that one should do everything to avoid. It could be so boggling that it may affect your health.
No matter what your circumstance is, if you signed for a loan, you are obligated to pay it back even if you have a life altering experience like losing a job, getting into an accident, or even if you have increased expenses due to having a child or sudden change in your operating environment.
Sometimes debt can just be an unintended consequence of too much holiday spending — or overspending any time of year. Many people try to get out of debt, but life slaps them in the face hard enough that they give up.
However, the good thing is that there are so many people who are getting out of debt every single day, and not only that, but they are getting out of debt in a short period of time, despite the present economic hardship in the country.
If you are one of those who are heavily indebted, who want to step on the path to financial freedom, it’s important to have a plan for how you’re going to tackle that debt.
Here are 5 simple steps to help you eliminate your debt pronto:
Decide to stop borrowing
The first step out of debt is to stop using debt to fund your lifestyle. It don’t halt your debt chain is you must get out of debt. It is something you must do consciously. You must decide to live within your means. This means no more overdrafts, no consumer loan; hire purchase must be a thing of the past. This will help you focus solely on the debt that you currently do have so that you can develop a game plan to pay it off quickly.
It means you would only spend money on what you need and not what you want. Essentials must top your spending list.
Set-up emergency fund
You might be wondering, why do you need an emergency fund for? You need to note that emergencies don’t give notice before they happen. So, if one should happen today, how do you intend to settle it? If you don’t have a contingency plan, when an emergency occurs that requires money, it means you have to go borrowing, worsening your debt problem. If you are trying to get out of debt then you need to put a buffer between you and debt; that is exactly what an emergency fund does.
Follow your budget plan religiously
It is imperative to develop a budget that tracks your income and your expenses if you want to get out of debt in a short period of time. It will help you gauge where you are with your finances so that you can move forward toward your goal. It will expose whether you have money left over, which is called a surplus, or if you are in the negative, which is called a deficit. The goal is to increase your surplus and use that money to pay down your debt. Below are two ways that you can do this.
The first way is to earn some extra cash. If you are in a commission-based job then this means that you need to make more sales, which will probably involve having to work more hours. If you are in a salary job and you are limited in the hours that you can work, then you might need to pick up part-time job. You just have to do something extra that would earn you extra income.
At times it may be difficult to increase you income, but you could always cut your expenses. It is always within your power to trim what you spend money on. To do this, go over each line item on your budget and ask yourself, ‘how can I make this number smaller?’ It may involve cancelling visiting the cinema, going for smaller bouquet of satellite television services etc.
It might even involve reducing the amount of times that you eat out at restaurants each month. The amount that you slash depends upon your commitment level to getting out of debt. The more committed you are, the easier it will be for you to give up some of the unnecessary amenities in life. You might not even need to sacrifice much if you can find these items or services for less.
Organize your debt
This is paramount to mapping out a plan to pay off your debt. There are two approaches that are worth considering. The first is where you list your debts smallest to largest regardless of the interest rate. When you paid off your first debt it put wind in your sails. Even though you may have higher interest debts, this would give you something that would propel you: the belief that you can be debt-free as quickly as possible, once you stick to the plan.
Another thing you may have to do to out of debt quickly is listing your debts, starting with the highest interest rate first and end with the debt with the lowest interest rate or interest free. This method makes the most mathematical sense, because you will save the most money in interest over time. Regardless of which process you choose, the key is to stick with it.
Make your debt a priority
In the process of offsetting your debts, some extra cash may come your way, which you did not factor into your debt initially. When this happens, don’t hesitate to use this extra cash to pay part of your debts. This is the quicker you are debt free the better for you. And the more cash you can put towards your debt, the faster it will disappear.