Guide to Getting Out of Debt

In-Depth Guide to Getting Out of Debt

Living with debt can feel like a huge weight is on your shoulders at all times. It’s distracting, stressful, and can have an extremely negative impact on your life. Every time that you’re reminded of your debt, you start dwelling on the impossibility of getting out from under it. The good news is that getting out of debt might not be as challenging as you think. By following some essential steps, tackling your debt becomes significantly easier. Don’t bury your head in the sand and hope that your debts will simply vanish. Our guide to getting out of debt could be the first step to living debt-free. Here’s what you need to know.

Identifying Debts

Your first step is to have a very clear idea of how much you owe and who you owe it to. Sit down with a pen and paper (or your laptop), and start writing down everything that you owe. Include the biggest debts to the smallest, including any money that you’ve borrowed from friends and/or family. The best thing about this process for many people is that they get their final figure and realize that the amount that they owe isn’t as large as they thought. Of course, others may get to that grand total and start feeling worse than ever, but don’t panic. This is simply the first step to becoming debt-free. By taking ownership of your debt, you will be able to mentally process it more easily.

Tracking Your Debt

You don’t need any fancy software to create a debt tracker. Simply use your most accessible spreadsheet (Excel or Google Spreadsheets is perfectly fine), and fill out:

  • The names of the people and organizations that you owe money to
  • The interest rates of each debt
  • The total current balance of the debt
  • The length of the loan term (this does not apply to every debt)
  • Minimum payment amounts

This will be the best way to get your debt number, but it will also be the start of identifying which of your debts should be prioritized.

Debt Priorities

There’s a difference between a good debt and a bad debt. Generally, bad debts are those where you borrowed money for something that you don’t really need. Credit card debt is commonly considered a bad debt while borrowing money for your education or for a business is considered good debt. It is the smart move to pay off your bad debts first, but you don’t have to try and pay everything off in one go. First, focus on the debts that come with the highest interest rates. Credit cards come with a wide range of APRs, so pick the one that’s the highest, and focus on that debt. By doing so, you will be able to save yourself a lot more money.

Top Tip: There will generally be a minimum acceptable amount that you can pay off, but don’t stick to that total. Instead, put in as much as you can afford each time you make a debt payment. This, too, will help you get out of your debts faster.

Practical Steps To Eradicating Debt

You’ve set up your debt tracker and you know which of your debts need to be paid off in which order. That’s a great start. However, you also need to remember to avoid temptation and add to your debt levels. Use a calendar reminder to update your derby tracker. Not only will this keep you on top of things, but it can also act as a motivational tool every time you see that debt total get lower. Of course, the most important thing here is to make sure that you aren’t growing your debts as you’re fighting off others. Hide your credit cards if necessary, or cut them up entirely. Some people have even been known to put their credit cards in a block of ice in the freezer so that they have time to think about their purchases as the ice defrosts.

Using Automation

One of the biggest barriers to getting rid of debt is willpower. It can be hard to keep on spending money on your debt when there are many more fun things to buy! The solution to this is automation. Set up automated payments so that you never get to see that money and be tempted to go a week or month treating yourself. This is not going to be useful in any way. Set up those automatic payments, and you take willpower out of the equation.

Money Management and Planning

As well as regularly spending money to pay off your debts, you should also make sure that your living expenses are managed in the most practical way. There are plenty of budget management apps available that can make it easier to take control of your finances. Don’t forget to plan for events, such as a friend’s birthday or a wedding. Live as cheaply as you possibly can and your debts will be gone a lot faster. There are millions of online articles about how to live more cheaply, but the basics are always the same:

  • Cook your meals instead of eating out
  • Get rid of cable and limit yourself to a single streaming service
  • Live with other people
  • Get rid of the car and either use public transport or a bicycle

The cheaper that you can live the more cash you’ll have at the end of the month. Use that money to pay your debts.

Avoid Scams

One vitally important aspect of paying off debt to be aware of is that there are plenty of people out there who will happily scam you, and there is a wide range of scams out there. There can be false promises made about how much you’ll have to pay back in total or promises of a lower amount that will require impossible levels of income to keep up with. Have a clear idea of the most common debt lawsuit settlement scams so that you can avoid them. Being tricked into a settlement scam or debt lawsuit could seriously hinder your efforts, and the hard work that you’ve put into tackling your debts will be undone.

Ensuring that You Remain Debt-Free

You’ve got your plan in place, you’re making your automated payments, and making sure that the debts with the highest interest rates are being prioritized. However, you still need to ensure that you don’t slip back into bad habits. If you’ve managed to start making a dent into what you owe, here’s what you need to remember to do next:

  • Monitor and Update: Keep on tracking your debt, even if you’re coming to the end of it. You might need to adjust who you’re paying, when you’re paying, and how much. Keep an eye on your credit score to see how your debt management is making a real change to your future.
  • Earn Extra Cash: Saving money and being a little more careful about your spending is crucial, but you can also make more of a difference to your payment amounts by earning some extra money. After all, it’s easier to earn $100 than it is to trim the same amount from your budget! Talk to your employer about a pay rise, and if none is forthcoming, then start looking around for work with a higher salary. Alternatively, you could start a side hustle or an online business that will create another revenue stream that will help you manage your cash a lot more comfortably.

Recognize Your Victories

As your debt total gets lower, don’t be afraid to celebrate landmarks. It takes hard work and some discipline to get out of debt, and if you’re making advances, then you’re allowed to be proud of yourself. Of course, don’t celebrate those wins so much that you end up creating more debt! Treat yourself to small rewards, and you’ll find that you will boost your motivation.

Have New Goals

If you follow all of the advice here, then you will be able to eradicate debt. However, you shouldn’t stop there. It’s very easy to fall back into old habits once you’ve met your debt goals, and that means it’s time to set new goals. The plan now should be to build up your savings with a target in mind. Once you are debt-free, you have a lot more financial options to explore, and your credit rating may mean that you can apply for loans with much lower interest rates. Whether your goals are travel, property purchase, or even your retirement fund, having those goals makes it much easier to motivate yourself to hit them. It’s not easy to get yourself out of debt, and it will take some planning and some willpower. There may be setbacks on occasion, but don’t let them diminish your hard work so far. By prioritizing your debts rather than burying your head in the sand, you will be taking the first steps into a debt-free life.

Check Also

Tax Troubles - 5 Costly Tax Mistakes to Avoid

Tax Troubles – 5 Costly Tax Mistakes to Avoid

Image: rawpixel/Pixabay This year, the Australian Taxation Office will be issuing a more comprehensive range …