5 winning steps to eliminate your debt burden
Being knee-deep in debt can be very stressful. Whenever you take out a loan, you have to pay it off even if you have a life changing experience like getting into an accident or losing your job or increasing expenses due to having a baby. Debt should be paid off under any circumstances.
Note that getting out of debt is not a big deal. You can do it in a short span of time by just following some simple steps.
- Stop borrowing – This should be your first concrete decision if you want to eliminate the burden of debt from your life. Stop incurring debt to fund your lifestyle. No more credit cards, no more test driving new cars if you don’t have money to pay for it. This will surely help you be focused on the debts that you presently owe so that you can create a solid plan to pay it off quickly.
- Create an emergency fund – Creating an emergency fund is very important, as having no funds in the bank can be disastrous if an emergency occurs. For many people, credit cards are the funding source to tackle such emergency situations. You shouldn’t however do this, especially if you’re struggling to get out of debt. Put a buffer between yourself and your debts, and that is what an emergency fund does. Create an emergency fund of at least $1000.
- Make a realistic budget – Creating a budget which tracks your monthly income and expenses is a very important step towards getting out of debt in a short time frame. It will help you understand where you stand in terms of your finances so that you can move towards meeting your financial goal and it will reveal whether you have surplus money or are running in deficit. The aim of creating the budget is to increase your surplus money and use it to pay debts. And there are two feasible ways through which you can increase surplus.
1. You have to find ways to earn some extra money each month.
2. Try hard to cut down your monthly expenses.
- Arrange your debts – This is the key to mapping out a proper plan for paying off your debts. List your existing debts from the smallest to the largest irrespective of interest rate. This method helps in building momentum. This way, when you completely pay off your first debt, it will put wind in your sails. Even though you have higher interest rates, this method will give you something which is very powerful in motivating you. This will give you the belief that you can get out of debt easily if you stick to your plan. There is another method which is known as ‘laddering’ or ‘debt avalanche’. In this, you will have to allot enough money to make minimum payments towards each debt and then devote the remaining debt-repayment funds towards paying off the debt with highest interest rate. With this method, you can save a lot on interests over time. Whatever process you select, you have to stick to it till the end.
- Throw extra cash at your debts – While getting out of debt, you may sometimes find some extra cash in your lap that you didn’t count into your debt elimination process. Take this money and use it to tackle your outstanding debts. The extra cash can be gotten through tax refunds, winning a bet, selling a car or an inheritance. The more money you put towards the debts, the quicker it would be paid off.
Discussed above is a simple ‘how to get out of debt’ remedy that you can follow and get rid of your debt burden slowly but steadily.
photo via Flickr stockmonkeys.com
Guest Author: Mariia Lvovych
