There are a variety of ways that a person can use to get out of debt and these methods generally depend on where the debt comes from. The situations of individuals who wish to get out of debt differ greatly and it is important to find the right combination of solutions. There are some steps that are important in any situation however, that are highly recommended.
If you are looking to get out of debt than there is a good chance that you have more than once source of debt – the majority of people do. Whether your debt comes from a car loan, mortgage, credit cards, personal loans, or anywhere else, you need to get these debts organized.
Look at how much you owe on each one, when the bills are due, what the interest rates are and write them all down. This will help you get a better scope of what you debt level really is.
Create a Budget
Budgeting is always important to keep anyone’s finances straight. A budget is created by adding up all of the income that is brought into the household and noting all of the expenses. In the case that there isn’t enough income to cover the expenses, you need to cut down on the amount of money that is spent. In the case that you have a surplus, you have a choice of what to do with it.
The best options for this surplus include putting more money towards paying off the debt and placing the money in a savings account.
Cut Down the Expenses
There are a number of places where you can possibly cut down on expenses:
Eat at Home: If you like to eat out, now is the time to cut back and start eating at home. You can save hundreds of dollars a month by doing this if you dine out frequently.
Use Cash Not Credit: Leave your credit cards at home and only use the money that you have available. This prevents extra balances on the credit card and it ensures that you don’t overspend.
Avoid Third Party ATMs: Automatic teller machines from a third party can charge two or three dollars per transaction on their side. Some banks also charge when their card is used at these machines. This means that for every time you use a third party ATM, you can be charged up to five dollars and more. Avoid them and the savings build up.
Use Coupons: Collecting and using coupons is not a thing of the past. There are magazines and websites that offer these coupons. If you use them on products that you would normally use, you can save hundreds of dollars a year.
Buy In House Brands: There are plenty of brand names to choose from but that doesn’t make the more expensive ones any better. Usually the basic groceries and sometimes even clothing or other products are made by the in house brand and are a lot cheaper.
Put the Extra Money towards Debt
When you see the money that you can save even from following the previous tips, you may be surprised. These methods alone can save hundreds and even thousands of dollars per year. This money, or at least a portion of it, should be used to clear up parts of the debt. The items that have the highest interest rates are advised to be cleared up first unless there is something pressing like the electric bill.
Take Care of the Debt
There are other ways that you can take care of the debt. If you have a number of credit cards and personal loans, you can apply for a consolidation loan from a bank or financial company. These loans have lower interest rates. Basically, the loan is used to cover the other debts and you are left with only paying that one loan. You save money on the interest and life is a bit more organized.
You should note that not all of these loans are created equal and you should take your time to find the most suitable one.
There is another option instead of the consolidation loan. You can apply for a lower interest credit card and use that card to cover other debts. This generally has the same effect as the consolidation loan and it may be easier to obtain.
In the case that you can’t obtain the loan or the credit card, create a diary of the payments that you are making. Write down when the payments are due and make sure that you pay them on time. For credit cards, if you can afford more, pay more and decrease those balances.
Making payments on time prevents late payment fees, which also means less interest.
For some situations, negotiating and settling debt are necessary. In this case, you need to contact the creditor, let them know your situation and your intent of making a settlement with them. This process can take months but if you really can’t make the payments then it can become a necessity.
Open a Savings Account
If you don’t already have one, open a savings account with a higher level of interest. Banks are getting more competitive and are offering higher rates which you can benefit from. A portion of the money that you have been able to keep in your pocket from cutting the expenses can be placed in the bank account. You can save this money or use it in an emergency situation instead of incurring more debt.
Create Your Own Financial Plan
When you organize your debt, create a budget and look at your options, you are in effect, creating your own financial plan. Create it and stick to it – there is plenty of motivation. You don’t even have to pay an advisor for this when you can use your own smarts.