Debt is a trap many may fall into at various points in their lives. Fortunately, with a plan, pretty much anyone can improve their finances. The thing to remember is that it’s one step at a time and getting out of debt doesn’t happen overnight. That said, regardless of what’s owing, overcoming debt is possible. It just takes planning and time.
Below are the twelve steps to get out of debt:
Step #1: Focus on your debt
If you want to get out of debt, you have to concentrate and be smart about what you’re spending money on. This involves analyzing every money-spending decision. Also, look to the future. Stop looking at the past. Don’t focus on the debt amount or the interest fees you’re presumably being hit by. Instead, concentrate on what you’re doing right. Stay positive and focused.
Step #2: Write a budget
Setting a budget is one of the most important steps to get out of debt. Create one in a spreadsheet or write it out on a piece of paper. Include all expenses, income coming in, monthly bills owing, and any other pertinent information. Most people have fixed incomes. Your expenses should be fixed as well. Have a clear idea on everything that is or isn’t possible on your current income.
Step #3: Make a debt payment plan
As a part of your budget, craft a debt payment plan. List all debts and prioritize them based on how easy they are to clear, such as paying off your payday loans. Decide what a reasonable minimum payment is that you can make every month. Please note that this is only a minimum amount. If the money is there, of course, you can put down more. That said, a basic amount outlines a promise you make to yourself.
Step #4: Tackle high-interest debt first
Pay down your high-interest debt first. There’s no reason for you to be paying interest. It’s just money you’re giving away. If there’s a way to consolidate debts under a lower interest rate, a debt consolidation loan from a bank may be an offer to consider. This will instantly cut down what’s being taken from you every month in interest and further help you along in regaining control over your accounts.
Step #5: Spend less and cut expenses
Don’t just spend less but cut expenses. Take an honest look at your bank account. Any unnecessary spending should be reduced to zero. If you’re in debt, buying a Starbucks coffee shouldn’t be an expenditure on your monthly balance sheet.
Step #6: Downgrade necessities where you can
This isn’t going to sound nice but take a hard look at what you’re paying on necessities. Downgrade wherever possible. Move to housing where the payments are less. Buy cheaper groceries. Cut down on transportation costs. Look into any programs that could help you with utility bills. Anything you’re willing to do to lower these essentials, it can make the world of difference. It only has to be temporary while your debt is being paid down.
Step #7: Increase income on a temporary basis
A budget has two columns – expenditures and income. By minimizing the money going out, a person controls the money they have. Look to see if there’s a way to increase your monthly income. This may involve taking on more hours, working overtime, or taking a second job. Assuming you have the time and opportunity to, a short-term job commitment of let’s say six months can do a lot to help pay down debts that are weighing your down.
Step #8: Make money fast
Most of us have items, materials, or things that we can sell to make a quick buck. Consider anything you may be willing to part with. From selling your car to furniture, kitchen appliances, electronics, instruments, video game consoles, clothes, and anything you aren’t using, this strategy’s all about getting you money quick to make a large payment on top of what you owe.
Step #9: Sell a service
You may have knowledge to offer in a category of work, a service you can do such as construction work, or have another means of accumulating income at an increased pace i.e. renting out a room through AirBnB. Once again, all this extra effort and work doesn’t have to be permanent. As a temporary means of getting out of debt, you have to look at all available opportunities and at least, consider them.
Step #10: Contact creditors
When you’re in dire need of help, contact your creditor and see if they’re willing to make a settlement offer or lower your interest rate. If you don’t have a record of on-time payments, consider waiting one or two months. Demonstrate you’re paying down your debt. You may be surprised at what they’re able to do. It could save you big in the long-run and doesn’t hurt to ask.
Step #11: Stop using credit
Your credit card’s an enemy if you’re in a massive amount of debt. Cut it up. You have to do everything you can to avoid going deeper into debt. You can always re-order a card once payments are made and the debt is fully cleared. For the time being though, curb your credit spending by eliminating it altogether.
Step #12: Start saving
It may sound counterintuitive to start saving money when you don’t have money to save. Budgeting, however, should involve savings goals. It doesn’t have to be much. Even ten dollars off each paycheque will still give you something to look at as a reward for working hard at eliminating debts.