Do you want to get out of debt? Then you need to set up a debt elimination plan. A debt elimination plan is easy to set up, but difficult to follow. But in the end, it is worth getting rid of your debts once and for all.
Being free of debt allows you to build wealth, take control of your finances, and help you achieve your long-term financial goals instead of just worrying about daily expenses or paying the bills. You can’t even see how much of your debt hurt you until you pay it off. So stop making excuses and follow these six steps to get out of debt.
Make a list
First you have to list all your debts. This list should include all of your debts, whether it is student loan debt, credit card debt, or money owed to family or friends. You are supposed to have the amount owed as well as the interest rate associated with it.
Then order the list from the highest interest rate to the lowest interest rate. This is the order that you use to pay off your debts. You may want to set your debt payment order depending on the type of repayment you are using. For example, the snowball method writes that you pay off the smallest debt first, then move on to the next smallest one, and so on. You should also add up the sum of all your debts. This number can be shocking, but it can also be motivation to help you focus on debt elimination.
Start budgeting effectively
The next step in eliminating debt is to set a budget and stick to it. To get out of debt quickly, consider cutting additional expenses from your budget. Think luxury like getting your nails done, buying a new kitchen gadget, or going out to eat.
Check out other ways on how you can cut your monthly expenses, how to cut your cable bill, cut cables entirely or less on grocery expenses every week. Aim to exempt you from $ 200 to $ 300 extra each month towards putting your debt.
Set up an emergency fund
The third step of your debt elimination is to set up an emergency fund. While the suggested amount varies, you should try to get at least 3 months of living expenses.
Put this money in a savings account with easy access for when there are unplanned emergency costs. This way you will not resort to using credit cards and will accumulate even more debt. You can use the money that you have released in your budget to be funded into this account.
Keep in mind that an emergency is something that needs to be dealt with promptly, such as a broken arm or a car repair. An emergency doesn’t replace your sofa or find the perfect set of shoes for sale. Make sure that you are only using this money for a real emergency, not to cover yourself if you spend too much.
Start paying off debts
Now it’s time to start paying down your debts. Once you’ve released money into your budget and padded emergency funds, it’s time for the money to take on the first debt on your list.
Don’t share the money on all of your debts. By focusing on just one debt, you build more momentum and will pay off that debt faster. Once you’ve completed the first debt settlement, go to the second one. You should apply the amount of your first payment as well as the additional money from your two debts budget so that an even greater amount will apply towards the next debt.
Continue with this pattern on your list of old payments rolling into the next debt and you will get rid of your debt much faster. By finding more money, you can speed up the plan even more to cover your debts. Also, be sure that you understand your bank policy about making additional payments to make your personal payments that work most effectively for you.
Occasionally, you may need to find or boost a little motivation to keep it focused on getting out of debt. Picking up extra time at work, getting a second job, or selling some items can help you get rid of your debt much faster.
Setting mini goals and allowing you to hold small celebrations (like dinner) when you reach a goal (like paying off $ 5,000 in debt) can also help you stay focused.
Focus on his debt-free in the future
Once you’ve worked so hard to get out of debt, you should make a commitment to stay debt free. That means planning for your expenses and saving for them. These are called falling funds, and you can have them for everything from home repairs to vacation. It also means buying your next car storage and sticking to your budget, but you will now have more scope in your budget.
You should also focus on saving money and building wealth because this will help you absorb the bigger cost without going back into debt. Sound financial planning will help you achieve your goals. Take the time to create one and speak to a financial planner so that you stay on the right financial path.