GETTING OUT OF DEBT QUICKLY

Starting to save and eventually invest some of your money are very commendable goals. But it won’t happen if you always find yourself having debts. In order to be able to start your dream of being able to save, your first important task is to free yourself from debts. It’s time that you refrain yourself from spending more than what you are really capable to pay.

Just like any other guy, I also made some very bad financial decisions that had led me to owing some debts. I was naïve that time and not really giving a serious look at my finances. I thought I had a good job and a steady salary that can pay off those debts. I got a loan and a credit card. And so I went on spending a lot of money that I had and money that I thought I had. Until, there came a time when I started having trouble sustaining that kind of lifestyle. I had difficulty paying my loan and my credit card bills. It turned out that my salary wasn’t enough to take care of all the debts that I accumulated. It was giving me so much headache and those bills that are piling up follow me even in my dreams.

So I decided I have to take action and turn things around. I have to be “financially fit”. In order to do so, I had to get out of debt first. And I did!

If you think getting out of debt is impossible, you are wrong! With a proper mindset, it can be done. The thing is, if you really want to be free from it, you need to have faith in yourself that you can do it! It’s all about your drive. So, if you are determined to start getting rid of those financial shackles, here’s a step-by-step solution that might help:

Step 1: Stop Creating New Debt

Change your financial habits. Never buy on impulse. From now on, every purchase that you make must be planned. Getting out of debt will be more difficult if you can’t curb the urge to spend like how you used to. Remember that you need to have a financial peace of mind, and buying more stuff that you don’t really need will not help solve your debt problems.

Step 2: List Your Debts and Rank Them By Interest Rate

Prepare a spreadsheet detailing all your debt with amounts and the interest rate. Put a priority on the one that has the highest interest rate. This is where most of your payment should go to. Interest increases the amount you need to pay back, and it makes paying off the debt much harder and for that reason, it has to be eliminated from your list as soon as possible.

Step 3: Look For A Lower Interest Rate

If you are suffering from thinking about having to deal with debts from multiple banks, your best option might be doing a balance transfer. Look for another bank that offers a lower interest rate and move your balances to that particular bank. Make sure that you read the terms and conditions carefully so you don’t get stung by the new bank in other ways. Once you’ve done this, you can order your list of debt again if things have changed.

Step 4: Plan Your Spending

Decide how much you're willing to spend on each area of your life. Make a list of your expenses and carefully check the important ones. You can allocate amounts for rent, groceries, eating out, buying clothes, and other activities—however, realize that once you’ve spent your allocated money there’s no dipping into other areas. It also helps to have a "fun account" that you can spend on what you like and an "emergencies account" in case your car breaks down, etc.

Step 5: Always Pay On Time

Avoid missing a payment so as not to incur additional fees. Additional fees like penalty charges and late payment fees usually add up pretty quickly, thus, making it harder and longer for you to write off your debt.

Step 6: Reward Your Progress

It doesn’t hurt to reward yourself once in a while when you hit your target or milestone. This is an important step as it will keep your motivation going when you feel your willpower fading.

Step 7: Compound Your ResultsP

As soon as you pay off your first target debt you move the stack to the next debt with the next highest interest rate. This will become the new target debt where most of your debt payments should go to. As you decrease a debt you actually increase your repayment amount. This means the second debt will get paid off even faster, the third even faster than that, and so on and so on until you are completely debt free.