Let’s face it. Debt is unavoidable. Maybe you need money to finance your education or to finance your business. Probably you need to make a major purchase and don’t have the financial means to do so on your own. Well, you are not alone.
How To Get Out Of Debt
According to a survey carried out in 2017, 38.1% of all American households carry some sort of credit card debt. The same research revealed that the average American Household debt stands at $5,700.
Since debt is an oppressive burden which may have you ducking from creditors’ and their phone calls, it’s wise to set yourself free. The only way of doing so is to come up with an effective plan that is composed of drastic measures to ensure you are debt free.
Want to know how to become debt free?
Follow this step by step guide.
Have a Positive Mindset
To become debt free, you need to have a positive mindset. This will enable you to stay motivated and dedicated to see through the debt clearance exercise. So, how do you attain a positive mindset? The first thing you need to do is halt any exaggerations especially when it comes to your income and debts. For instance, you earn $50,000 in a year, have a $1,200 mortgage and you are planning to pay off your $18K credit card debt at a rate of $2,400 a month. That is an exaggeration.
Next, you need to halt negative thinking. If you are going to settle all your debts, you need to be motivated all through. Keep encouraging yourself through the entire debt riddance process if you are to achieve success.
The best way to go about this is by coming up with constructive suggestions instead of being critical. Don’t forget to praise yourself along the way as this will uplift your confidence.
Categorize Your Debts
There are two ways of going about this. For starters, you can categorize your debts according to type. Alternatively, you can list your debts according to interest rate. Using the first method, group your debts according to secured or unsecured.
For instance, mortgage is a secured debt because it’s backed by an asset that is your home while your student loan is unsecured since it’s not backed by any asset.
Using the second method, you can decide to list your debts from the largest to the smallest according to interest rate. It is important to understand that the higher the interest rate, the more you will be paying.
Now that you have categorized your debts, start paying off debts with a high interest rate. Why? High interest rates cost you money. To be debt free, avoid paying minimal amounts on your high interest debts. This will be costly in the long run.
Have a Realistic Budget
Since you have embarked on a journey towards becoming debt free, having a budget enables you to use available resources wisely and avoid any bleeding. A budget is largely composed of your income and expenses. The first thing you should consider is your income. This should be followed by your expenses and finally your debts.
Having a budget has several benefits. For starters it keeps you focused on your financial goals. As a result, you get to avoid unnecessary spending. Secondly, a budget enables you to organize your savings and spending. Thirdly, it allows you to communicate efficiently with your spouse regarding the use of money. Lastly, it enables you to produce extra money.
Learn how to make a personal budget in 7 steps.
Get the Best Rate
Did you know that your existing debt’s interest rate can be lowered allowing you to pay off the debt much easier? Let’s assume you have a student debt amounting to $30,000 that you borrowed at an interest rate of 8%. Back then, you did not have an established credit history which means you ended up having a bad score.
After graduating, you started working which means you now had income to settle your debt. After 5 to 10 years since you took the student loan, you are still repaying it at a high interest of 8%. What you ought to know is that you can repay the debt at a lesser interest rate.
Here is how. Approach a bank and ask them to refinance your student loan. This means the bank will settle the debt on your behalf. Before they do so, they will check your credit score and find out that it has improved thanks to your efforts in repaying the loan. The bank will then buy you out of the loan and they will offer you the loan at an interest rate of less than 5%. This means you will now be paying back the loan at a lesser interest rate than before. So, shop for the best rates beforehand.
Sell Stuff You Don’t Need
Credit cards have made it easier for us to shop. All you have to do is walk into a store, select an item you have desired to own and have the cashier swipe your credit card before walking home with the item. If this was a one off purchase, your debts would be manageable but it’s probably not. You will find shoppers moving from one store to another purchasing items they will probably use once or never. In the end, different parts of your home including your closet will be occupied by unnecessary stuff.
Want to earn extra money which can be used to settle your debts? Start selling any unnecessary items. This may include furniture, clothes, shoes, handbags, decorative pieces, electronics and cookware among others.
Want to get started? Host a garage sale or create an account on eBay. You also have the option of selling to a garage sale Facebook group. With the extra cash earned from the sale of unnecessary items, budget and use it to pay off your debts.
Get a Second Job or Start Investing
Getting a second online job or running a side business is an effective way of increasing your income. The additional money can be used to settle your debts finally shortening your journey of reducing debts. Majority of us have 9 to 5 jobs which leaves little time to take on another venture. The good news is that there are tons of opportunities you can engage in without interfering your day job.
Let’s start with freelancing. Do you have any of the following skills: – engineering, web design, graphic design, software development, app development, copy writing and tutoring. Well, you can earn an extra income while working online. There are tons of platforms you can use such as Upwork, Fiverr and 99Designs. Others like Envato allow you to list your creative work and earn money as you continue with your day job.
You also have the opportunity of starting a home online business. Thanks to improved technology, you can now own an e-shop at a fraction of the cost. Platforms you can use include Etsy, eBay and Shopify among others. To be successful, select a niche you are passionate about.
Don’t forget about swing trading. This is an easy way to bring in extra income via investing in the markets without having to be at your computer all day like a day trader. You will need to learn a swing trading strategy and practice it until you have learned the ropes and are confident enough to risk real money. Once you gain this knowledge and skill you can start investing from anywhere in the world so long as there is internet.
Cut Back on Your Expenditure
How much do you spend eating out? How much do you spend ordering in? To pay off your debts, you need to implement strict measures when it comes to spending. For instance, instead of eating out in expensive restaurants, why not prepare home cooked meals. Just shop for the ingredients at the local grocery store, download a cookbook and start preparing home cooked meals.
When it comes to ordering in, you need to cut back. If you love pizza, try home cooked pizza. There are several pizza recipes available online which you can prepare in your kitchen. The best thing about home cooked meals and snacks is that you are in control of the ingredients. Instead of saturated fats, you can prepare food using olive oil. Instead of GMO foods, you can opt for organic produced foods.
Before you start shopping, create a list and stick to it. When shopping, if you find your favorite boots or a large screen TV half off, don’t be tempted. Stick to your shopping list!
Final Thoughts On How To Get Out Of Debt
There is more that needs to be done to ensure that you are debt free. For starters, you need to save in an emergency fund which comes in handy in case of emergencies. Secondly, transfer your balance just before the introductory interest rates expire. Thirdly, become a one car household. Alternatively, you can shop for a slightly used car and save yourself thousands of dollars. Lastly, chat with a credit counselor. He or she will explain to you all available options.
Learn more about how to become debt free.