If you're reading this article, then most likely you are in search for a way to get out of debt or stay away from debt. Most people in the USA have debt.
Some of our debt is necessary. For instance, buying a home or car. Most of us accept these as necessary debts. Obviously if we had the money we would just pay it off, but most of us cannot afford to. So we accept this debt, and make the necessary payments. Just be sure to keep your debt less than 50% of your net income for the month. Please see my article on savings and budgeting.
Unfortunately some of us have bad debt. Our bad debt can be a combination of too many credit cards, too many store cards, too many loans. Before you know it, it's gotten out of hand. So what do you do? Well that's what we're going to be discussing in this blog.
I'm going to be sharing with you the Top 8 tips on how to get out of debt fast and how to stay away from it. So let us begin.
1) Start smallest to largest
What debt do you have? Personal loans, store loans, credit cards, student loans? Write them all down on a piece of paper. Then write all the amounts that you owe next to them. You're going to organize them starting from the smallest debt amount, to the greatest amount.
One by one you're going to start tackling these debts. You're going to start with the smallest one because this will help you to decrease the total amount of debt you have which in turn eliminates paying too much towards interest.
Also, this can add towards your quick satisfaction. Face it, we enjoy quick results. If you start off with a big loan. It can take much longer before you see a change which can damper your spirits. I need you to stay motivated and be pumped up about tackling your debts!
2) Get rid of your credit cards except one
Cut up all of your credit cards but one. You only need one. Yep, that's right. If you are in debt with too many credit cards, it's because you haven't learned to control you're spending. Credit cards are not extra money. They're loans from banks in order to help you establish credit. That's all.
No it isn't emergency money. Emergency cash is kept separate from your spending. See my blog savings and budgeting. Credit cards are a good way to build your credit, just be sure to pay it off at the end of the month if possible. This can do wonders for your credit. But having too many credit cards that are maxed out, this can cause great damage to your credit. So for now, downsize. Cut up all your credit cards but one.
3) Consolidation loan
If you have too many loans, let's say five or more. You may want to consider doing a debt consolidation loan. Speak to your Banker about your debt consolidation loan options. This is good for downsizing the amount of debt you have outstanding into one loan. Right now interest rates are really low. This would be a great time to take advantage of a debt consolidation loan. But remember, don't fall into the trap of just paying the minimum payment.
When you do a debt consolidation loan, you can choose a short or long-term loan. The point is to pay off the debt as soon as possible. Don't make it too high to where you get into trouble, but not too low to where you're stuck paying on this forever. Whatever payment you setup, pay double. When I say pay double, I mean make your minimum payment and then pay extra towards principal which brings us to our next point.
4) Understand & know exactly what you're paying in interest
Interest accrues daily. Let that sink in for a bit. The longer you wait to make your payment, the more interest accrues. Consider this, if you are paying on a debt once a month, you're allowing 30 days of interest to accrue. The interest will continue to compound. If after making a payment you go to check to see how much you're debt went down, you'll see very little change.
On the first half of your loan, you're paying mostly towards interest. Dividing up your payments will prevent your interest from accruing too much and you'll be able to pay off your debt much faster. I pay towards any loans I have weekly. This will only allow 7 days of interest to accrue and compound. At the minimum I would recommend paying biweekly.
Let's say you take out one of those 3 year loans of $5000 you see in the mail almost everyday. It has an interest rate of 24%. Well my first suggestion would be to tell you to toss it and run! But if you use the rule of paying more than the minimum, let's see what happens.
You will pay:
With Additional Payment:
You see what I mean? You'll more than cut your interest in half!
5) Be Committed!
Whether you start with one bill at a time or request a debt consolidation loan, be committed. You're going to fall down. Pick yourself up and get right back to it! It's not going to happen over night. It takes time. You'll be glad you stuck to it, trust me. Until your debt is paid off, it's best to consider yourself broke.
No more restaurants, no more going out to the movies, no more Starbucks - Or as my husband calls it '5 bucks'. Don't be mad at me! Be mad about your situation. You need to get out of debt. The interest itself is horrible. You can do it. I know you can. You need to make your mind up and tackle your debt. But you have to be absolutely determined. You're in it for the long haul.
6) Avoid Bad Debt
It seems like every time I go shopping whether it's at a store or online, someone there is offering me an extra 25% off if I get there store credit card. No matter how tempting it is, don't do it! Well you might say, "But it's good for my credit and I already have the money to pay it off right after." I can just pay it off and cut it up. Oh goodness. Those credit card companies are just laughing to themselves. Believe me, it's a lot easier to say it than to do it. Because right after you open that credit card, you're going to receive a coupon in your email giving you an extra 75% for your next purchase before the end of the week. It's a trap. Tell yourself this, "If I don't have the cash, I can't afford it." Period.
7) Remember Step 4
Besides your bad debt you may have some good debt as well like your house. Remember step 4. The same rules apply. Always make it a goal to knock out your debt asap. Go to your app store or search online for a financial calculator. Calculate the interest rates and extra payments. Make it a habit.
8) Time to Make a Change
As I always say, there may be some of you who are in a financial situation that makes it difficult to pay extra towards your debt or to save. You're feeling stuck. That's because of one of two reasons. Either your bills are too high, or your pay is too low. It may be time for a serious change.
Remember this, you are not stuck. If you're serious about fixing your situation, the time for change is today. There are way too many stories of people getting out of poverty and now live a very successful life. Some blogs may even recommend bankruptcy. I will never recommend that. It'll hurt you in more ways than one. You can fight threw it. Even if it takes you 5 years to pay off your debt, 5 years is better than 7 years of bad credit.
I really hope you enjoyed reading this blog as much as I've enjoyed writing it. My knowledge doesn't just come from what I've read or what someone told me. A lot of what I wrote is from my own experience. I've been there too. Which is why I believe in you and so should you!
If you enjoyed reading this blog, please leave a comment. If there's a certain topic you'd like to learn more about, please email me or search my other posts. Thank you again!
Hello and Welcome! Proluxx is a Finance, Budgeting, and Self Development blog. Our mission is to educate, motivate, and inspire as many individuals to gain financial peace and financial freedom through budgeting, investing, and side businesses. Hope you enjoy our content and leave a comment even if it is just to say hello!