In 5 Easy Steps, How to Get out of Debt
- It can be overwhelming to pay off debt, but you don’t need to if there is a plan.
- The first step is to identify where your money goes. This will allow you to reduce unnecessary expenditures and make use of the extra cash to pay down debt.
- Start with the highest-interest debts first to save money and make your debt payments faster.
- A consolidation loan for debt could lower your interest rate.
Are you facing financial hardship and struggling to get out of debt? In today’s economy, it seems impossible to pay off your debts. If you are currently stuck with too much credit card debt or auto loan payments, then it might be time to seek professional help. A credit counseling agency can offer free debt management services to help you regain control over your finances.
The process begins by determining the total amount of debt owed. Then, they can recommend the best debt solution for you. Contact a reputable credit counseling agency to start working towards better financial health today.
Financial hardships can happen at any point in life. Even though some forms of debt such as student loans or mortgages are unavoidable, other types of debt can become overwhelming. For example, high interest rates on car loans, credit cards and home equity lines of credit (HELOC) can put your future home ownership plans in jeopardy.
List of 5 Easy Ways to Get out of Debt
5. Make a budget
You may not be able to see if your spending is higher than your income if you don’t have one. Although it may sound boring, budgeting can be an effective tool to manage your money and plan for the future. You can use budgeting software like Mint to create a budget. However, you can also create a more effective budget with a simple notepad and pen.
Start by listing the amount of money you receive each month. Include income from your job as well as any other sources.
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Next, take note of all your fixed, recurring expenses. You should include your rent, mortgage, utility bills and insurance premiums. Consider how much you spend on non-essential expenses such as entertainment or dining out.
Look for ways to cut costs if you are spending more than what you make or if you don’t have enough money. Take, for example:
- Switch to a cheaper cellphone plan: If your current provider has a very expensive plan, you might be able to switch to a lower-cost version. You can also shop around with other providers to find a lower plan.
- Reduce streaming services
- Carpooling: If you drive to work every day, check to see if anyone near you would be interested in carpooling. To find a carpool partner, you can create a RideShare.org profile. You can save money on gas, car maintenance and other expenses by sharing the ride.
- Make a grocery list before you shop: While cooking and eating at home are great ways to save money, it is smart to make a list of all the items that you need to buy in order to avoid making unnecessary purchases.
4. The Debt Avalanche Strategy is a good option
Once you have a source of additional funds to pay off your debts you must decide how to best use it. For many, the debt avalanche strategy is the most efficient tool.
The debt avalanche method allows you to make a list and order your debts from highest interest rate to lowest. You continue to make minimum payments on all accounts, but you also put extra money towards the account with the highest rate of interest.
Once your highest-interest debt has been paid off, you can move on to the account that offers the highest interest rate. Keep going until you have paid off all your debt.
You will be able to pay down your highest-interest debt faster and save more in total interest.
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3. Keep track of your progress
It takes time to get rid of debt. Keep track of your progress at regular intervals. This will help you stay focused.
A visual or spreadsheet of your progress can help you remember what you have done and what you want to do.
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2. Take into consideration debt consolidation
Consolidating debt can accelerate the repayment of high-interest debt. You take out a personal loan from a bank or another reputable lender to consolidate your debts and pay them off. You will now have one loan to manage, and only one monthly payment.
You may also be eligible for a consolidation loan with lower interest rates if you have excellent credit or a friend, family member or relative with good credit and is willing to cosign. This can help you pay down your debt quicker and save you money over the long-term.
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1. Increase your income
There are only so many things you can do to save money. Your next goal should be to increase income. You can earn extra money by using your skills if a promotion or raise is not possible at your full-time position.
You might also consider changing the tax withholding at your workplace. You may have too many taxes withheld if you get a tax refund every year. This could lead to you having less money available to pay down your debts. To reduce your withholdings and increase your take home pay, ask your employer to provide a W-4 form. If you don’t get your tax refund, set aside the money to pay off any debts.
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Conclusion
Debt consolidation allows you to repay multiple debts into one manageable payment. This strategy can reduce your overall interest rate and increase your chances of repaying your debts faster. On the other hand, debt settlement involves negotiating lower rates with creditors to reduce your balance due.