Being stuck in debt can be a real big burden and can sometimes feel like a life sentence especially to households that are struggling to get by. What may seem like a hopeless situation may turn out to be achievableas there are a number of ways to slash your debt without going bankrupt.
The hardest part of getting out of debt is during the initial phase – when you really start organising and tackling those debts. It helps if you have the right mindset and are firm with your goal with what you want achieve.
Now we come to the point of how we can dig our way out of debt.
Step 1: Do not ignore your debt.
Ignoring the debt problem can only cost you higher interest rates, late fees and other extra charges. A debt even in small amounts can lead to bad credit report and hinder your chances of being able to borrow in the future even after you have sorted out your finances as it will show you how you handle your bills or debts.
Step 2: Create your list
Gather all your bills, debts and any financial commitments that you have – current, overdue or expected. This will guide you in creating a debt plan since you will know the amount of money you owe and when they are going to be due. You can obtain a free copy of your credit file if you are unsure of the debts you have.
Work out how much you spend on your living costs and work your way through with the rest.
When you do your calculation, try to be honest with your spending and write all of them down – this way, you will be able to identify areas where you can make some improvements or save money.
Step 3: Live within your means
You have got to know your spending limit. Work out the amount of money you can afford realistically – this should be the money that you are able to pay towards your repayments taking into consideration your living costs.
Step 4: Determine which creditor to pay off first
Here, you can either apply the stack method or the snowball method – these are two of the most common methods in paying off debts. The stack method is more of a traditional type of paying off one’s debts.This is where you pay the debt off with the highest interest first and then make a minimum payment on the rest of your debts. The great thing with the stack method is the fact that it can save you money through the interest rates. The only downside of it is that it can take some time to pay off your debts.
As far as the snowball method, it is just the opposite of the stack method and is considered to be the new way of paying off debts. You pay off the loan with the lowest balance regardless of the interest rate. You pay the minimum payment on all your loans and whatever is left goes to the debt with the smallest balance. This gives you a more immediate win in paying off your debt, but the downside is you will have to pay more in interest.
Talk to a professional agency about these two options and find out which one would work best for you.
Step 5: Get a professional help
If for instance your income does not meet your living expenses and you are struggling to pay your debts, then some professional assistance may be the answer. A lot of these professional agencies such as Debt Cutter can offer you options that can work well within your means – such options can be debt agreements, debt negotiation and more.
There really are no shortcuts to getting out of debt, all it takes is your commitment to follow through.