If you want to get out of the debt trap, then the most suitable time is NOW. For this, you will need to have a proper and effective plan in place. Start by believing and accepting your debt because ignoring it will be the most foolish thing to do. If you feel at any point of time that you are overwhelmed by debt, believe that you are not alone out there.
You will find a lot of families and households, two-parent and single-parent homes, senior citizens and young professionals surrounded by debt in all possible forms. It may be credit card debt or a home loan, personal loan or a student loan, car loan or peer to peer loan, but one will have one debt or other against their name. It is all due to the low average household income, and therefore debts are nothing to sneeze at, if only you know how to keep it under control.
The good news is that irrespective of the amount of debt you are in at this point, there are ways in which you can amazingly make it turn around into a more productive way, starting now.
The basics of it
Before you start to pay down your debts, you will first need to do a little prep work. This will ensure that you stay consistent in paying off your debt. Be informed that you did not get into debt in a single day. It accumulated over time, and therefore, you will not get out of it in one day as well. However, if you follow a few specific tips to create a proper plan of attack, you will stay consistent and be honest with yourself while you continue to pay off your debt.
Moreover, you must also believe that you may slip out of the track at times as this is not an easy one but make it a point to jump back in it right at the point where you left it off. Your hard work will surely pay off and add up to make your debt free. This will ensure that you will not need to call up a credit counselor and discuss the debt consolidation reviews that you may have read and decided to give it a try.
Things to do
Here are a few things that you need to do to prepare yourself well before your debt pay off begins:
- Tally it up – It is very important for you to know where exactly you stand and where you should start from. It will be impossible otherwise for you to pay off your debt and be honest with yourself. Therefore, collect all those credit card statements, personal loans, and student loan bills, balances of your furniture and car loans and others and add them all.
- Create a budget – This is the second most important thing to do for your debt pay off the venture. Creating a budget will enable you to see the amount of additional money you have to throw every month for your debt or debts. If you find it is too big an amount, do not worry. This being the starting point, it is the best time to look for expenses that you can curb to slash down your expenditure and save more to put it towards your debt.
Take help of a free budget printable to design a responsible and reasonable budget.
Determine your plan
All projects can be completed successfully if only you have a strategic plan to follow. When it comes to paying down your debts, there are ideally two common ways to do it: the debt snowball and the debt avalanche.
In the debt snowball method, arrange your debts from smallest to largest balance. Start eliminating the smallest ones but continue making the minimum payments on others. When one smallest debt is eliminated, move on to the next smallest until you complete your list. Ideally, debt snowball method is more preferred as it provides mental wins of paying off debt and gives less balance to work on in future.
On the other hand, the debt avalanche method is just the opposite way of working towards paying off your debt. In this method, you prioritize your debts from the highest to lowest interest rate and start with paying off your highest interest rate debt and make minimum payments for others. One significant advantage of this method is that you will be able to save the most money, in the long run, to continue paying off your other debts.
Neither of these methods is bad or good as it all depends on personal preference and comes down to the availability of resources at this moment.
Organize yourself well
You must lead an organized life to manage your finance when you have debts on you so that you can continue paying these off and prevent your credit score from being hurt badly.
- Always have an emergency fund in place and in order, before you actually get to the debt payoff. If you have a specific amount of money set aside and use it strictly for emergency situations, it will prevent you from relying on and using your credit cards or take on any other forms of debt. You will be able to continue making the minimum payments for your debts.
- You must cut up on the use of your credit cards as these just like the payday loans are probably the worst forms of debts that you can imagine of. The rates of interest in these debts are astronomical, and you will need spending years at a stretch trying to pay down these debts. Never treat your credit card as your emergency fund.
Always treat your debt as it is an emergency to get rid of it forever. Debts can affect your savings, your professional career, and your health and even affect your personal relations. You will tend to confine yourself in a shell and run away from social life. Therefore, the best way is to organize yourself and manage your finance well.