The recent recession has underlined the danger of accepting debt as a way of life, particularly extremely high interest forms of debt such as credit cards which more and more people are using. Due to how integral debt has become to society and day to day life it’s sometimes hard to imagine a life free from borrowing.
Getting out of debt is an achievable goal but it involves looking at life in a different way. If something seems like an impossible task it may well just be impossible with the approach you’ve planned to take.
Living by borrowing has become ingrained into society so it’s important to bear in mind that in order to break out of the cycle of debt you need to start thinking about things you’ve never considered before and develop a shrewder attitude. If you take a step by step approach you will attain a debt free life and far from scraping along in penury you may well rearrange your life to give you more free and saved cash than ever before.
The first step in this process is making sure that your attitude is a direct one. Many people who labor under a burden of debt develop ways of softening the reality. Some people don’t open their financial mail, others make light of their debt and spend without restraint in order to make themselves believe that the situation is fine. If you want to get out of debt you have to open up all those letters and squarely face the reality of the amount of debt you have and how you’re going to make changes to get rid of it.
Since this is an emotional step for many it is wise to establish a support group for emotional and practical assistance. You can reach out to friends and family or find a group of people engaged in a similar endeavor. Groups give you the opportunity to meet and talk with people who have already achieved the big part of the battle with debt and this is incredibly inspiring. It reminds you that you’re dealing with a real goal which has an end point in sight and this encourages you to stick to your plans and keep going.
Once your attitude is aligned correctly get all the information you can about your debts spread out in front of you and make an overview of what you are dealing with. List your amounts, interest rates and which companies you owe to.
Have a look at the highest interest rate debts, credit cards for example. Consider the possibility of getting a low interest loan and paying off the high interest debts with this. Provided the interest rate on the loan is lower than that on the original debt you will have improved your situation. You still owe the money to someone but by doing a shuffle before you start you can improve your situation.
Paying off debt will require regular repayments and so a budget must be made out of your finances to use for this purpose every month. The bigger this budget is the quicker you will get out of debt and the less interest you will pay overall.
Make an overview of your expenses. List absolutely everything that money is spent on be it cash in hand or bills and standing orders. It is essential for the expenses overview to be complete. Not only must you be careful in detailing each expense but you must make the overview complete and not start leaving out coffee money here and drinks money there.
If you’re serious about getting out of debt then all these frivolous bits of money are going to have to be saved and channeled into the debt repayment budget. Sacrifice is definitely a factor but the thing to remember is that it’s short term. Once your debts have been paid off you can relax your spending and start having fun again. By this time you will have realized that treats are only treats if you don’t overdo them and you won’t want to spend as much.
After you have listed all your expenses you need to go through the list and remove all unnecessary expenses from your budget. This means anything other than what you need to eat, have a home and work needs to be eliminated. Cigarettes are not necessary, TV channel subscriptions and even a TV are not necessities and neither are gym membership fees. Remember it’s not forever but if you want the new life you’ve been dreaming of to be a reality then the short term requires cut backs. Focus on looking forward to how much you will appreciate these things when you phase them back into your budget.
After this process you will be left with your necessary expenses and to further streamline your budget you need to minimize these. For example, you might downsize your home or rented accommodation, plan out more economical grocery shopping or renegotiate your household bills.
Once you are in possession of a minimized expenses budget you can turn your attention to your incoming funds and think about ways to maximize this aspect of your finances. More working hours, a second job or establishing an independent means of income are all options.
Creating extra income requires that you look at your skills, time and resources and come up with cost efficient ways to make money. This involves some thought and willingness to keep adjusting a plan to make it perfect. For example it’s not good enough to say that because you’re good at cooking you tried to establish a weekly class but it didn’t go anywhere. You need to think about why it didn’t work and based on that information what you need to do differently to make it work. If you struggle then reach out to your support network and ask for ideas and help implementing those ideas.
Take stock of all your possessions and see if you can sell or rent out any items to raise cash. Maybe some items can be used to earn income by furnishing classes or business endeavors?
This process of boosting income teaches you to think about what you can achieve with what you have in order to raise cash and it lines you up for a lifetime of financially efficient living. Often our skills and knowledge bases revolve around what we enjoy and a business endeavor wrapped around these skills is a way to monetize a hobby. Instead of sitting in a bar every week talking about writing with your friends you could have drinks in someone’s house while making some written content for a website or making gift cards to sell on eBay or etsy.
By shifting the way we do something it can move from expense to income and improve the financial status of our lives dramatically. If you enjoy clubbing try and get involved in event organization and earn a bit of money from what you enjoy, you might also be impressed at how much money you save from not being on the other side of the bar! If you love shopping start a blog about how you’re coping as a fashionista paying down debt and host Google ads on the blog.
With all of this going on you will now have a budget set aside to make debt repayments with on a monthly basis. First up contact all the companies you owe money to and let them know that you intend to set out on a process of monthly repayments. Try to get some assurance that the debt will not be sold on before you can pay it off. If this happens you can incur charges and end up on a bigger interest rate.
Check your debt overview and apportion your repayment budget across the debts. Aim to cover the minimums each month and put your extra money into the debts which have the highest interest charges on them.
Your first payments will be the hardest so be prepared for this tough start and remember that if you stand fast during this time the going will get easier.
Keep a tight watch on your finances. You don’t want to be missing or bouncing payments since this will acquire charges and also wear down the patience and potential leniency of your debtors. Make sure you know for sure a payment will go through and if you spot a problem coming get in contact with your creditors right away and explain the situation. Sometimes a company will go easier on you if you make some effort.
If you have spare funds one month then pay off a bit more on one of your debts. As debts get paid off you will be able to increase the payment amounts on those remaining and speed up your progress. Don’t be seduced by those small balances however, keep going until you’ve got a clean slate. Interest payments can soon balloon those little sums up again if you leave them to fester.
Once you’ve paid off your debt you will relax a bit of spending but many of your new good habits and efficient lifestyle choices will be around to stay meaning you have plenty of cash left every month to buy what you want and also to put away into secure fixed rate investments and savings. This ensures that whatever happens in life you will not need to borrow ever again as you will be cushioned. Spending money you do not have is a habit more often than a necessity. Habits are strengthened by practice and broken by abstinence and replacement (with a good habit).
Lastly make sure you only have one credit card and use it carefully. Never borrow on a card, only use it to pay for something which you know you have the funds for. The little naughty thrill we get from spending money that isn’t there is a very empty thrill indeed since come the end of the month, every month you’ll be paying over and over again for the same item until it’s value slips out of all reasonable proportion. Choosing to leave debt behind is a big step and although habits are hard to break the life beyond borrowing is satisfying enough to warrant the extra effort today.