Anyone who has ever struggled with debt knows that it can be a difficult and frustrating experience. Making the minimum payment each month can feel like you’re running on a treadmill i.e. you’re putting in the effort, but you’re not getting anywhere.
If you’re feeling stuck, here are 8 steps to get out of debt quickly;
Know Where You Stand
The first step to getting out of debt is to take a close look at your current financial situation. This means knowing how much money you have coming in each month and how much money is going out.
Get to know your liabilities and assets and calculate your net worth. This will give you a clear picture of where you are financially and will help you make a plan to get out of debt.
Make a Plan
Making a plan to pay off your debt is an important first step. But it’s also important to be realistic about how much you can afford to pay each month.
If you can’t make large payments, don’t worry. Even small payments will add up over time and help you get out of debt more quickly.
The important thing is to make a plan and stick to it. By doing so, you’ll be on your way to becoming debt-free in no time.
Get a handle on your spending
You can’t reduce your debt if you don’t know where your money is going.
Track your spending for at least 30 days so that you can see where your money is going and where you can cut back.
There’s no magic number for how much you should save each month, but knowing where your money is going is a good place to start.
Create a Budget
One of the best ways to stay out of debt is by creating a budget and sticking to it.
A budget allows you to see exactly where your money is going each month, which makes it easier to make room for debt payments without making too many sacrifices elsewhere.
Creating a budget can be daunting, but there are plenty of resources available to help you get started. Make sure to review your budget regularly and make adjustments as needed.
When you know where all of your money is going each month, it’s easier to make room for your debt payments without making too many sacrifices elsewhere.
Find extra money
Once you know where your money is going, you can start to look for ways to free up some extra cash.
This may include cutting back on expenses, starting a business, or finding ways to increase your income.
Any extra money you can bring in each month should be put towards your debt payments. The more you can pay each month, the faster you’ll be able to get out of debt.
Make a debt payment plan
Decide how much you’re willing to pay each month, and which debts you’re going to target first.
You may want to focus on paying off your smallest debts first, using the “snowball” method. Or you may want to focus on paying off your debts with the highest interest rates first, using the “avalanche” method.
Whichever approach you choose, make sure you stick to your plan.It’s also important to make more than the minimum payment each month, if possible. The extra money you pay will go towards reducing your principal balance, which will help you get out of debt faster.
There will be months when you can’t make anything more than the minimum payment. That’s ok – just try to catch up as best you can when your finances allow it.
Remember, getting out of debt is a marathon, not a sprint. But if you’re patient and consistent, you can do it.
It can be extremely easy to fall back into old habits when you’re finally making some progress with your debt-reduction plan.
You start seeing a little extra money in your monthly budget, and suddenly all of your old spending habits come rushing back.
However, it’s important to stay disciplined and continue following your plan until all of your debts are paid off. This may require making some sacrifices in the short term, but it will be well worth it once you’re finally out of debt.
In addition, you’ll likely find that you’re much more mindful of your spending once you’ve been through the process of paying off debt. So, even though it may be difficult to stick to your plan at first, it’s important to persevere to achieve your long-term goal of being debt-free.
Seek Help From a Professional
If you’re struggling to get out of debt on your own, don’t be afraid to seek help from a professional.
A professional can help you identify any areas where you may be overspending and offer suggestions for how to cut back.
A financial advisor can also help you create a plan to pay off your debts and get your finances back on track.
Create a plan for after you’re debt-free
A lot of people think that once they’re out of debt, they can just start spending their money however they want. However, this can be a dangerous mindset to have.
Without a plan for what to do with your extra money, it’s easy to fall back into old habits and find yourself in debt again. Figure out what you’ll do with your extra money once you’re out of debt. Will you save it? Invest it? Use it to pay down other debts?
5 Debt Reduction Strategies
Below are 5 Debt reduction strategies that work. If you are looking for a way out of debt, consider trying one or more of the options below.
The ‘avalanche’ method
This debt-reduction strategy involves making a list of all your debts from the one with the highest interest rate to the one with the lowest
Then make minimum payments on all your debts except the one with the highest interest rate. On the debt with the highest rate, make a large payment as possible.
Once that debt is paid off, move on to the next highest interest rate debt, and so on until all your debts are paid off.
This method saves you money in interest charges because you’re attacking the most expensive debt first.
The ‘snowball’ method
This strategy is similar to the avalanche method but with a twist: Make minimum payments on all your debts except the one with the smallest balance.
On that debt with the smallest balance, make a large payment as you can afford. Once that debt is paid off, move on to the next smallest balance debt, and so on until all your debts are paid off.
The advantage of this method is that it’s psychologically more satisfying because you see results more quickly (i.e. you pay off smaller debts first).
The ‘stack’ method
With this strategy, you again make minimum payments on all your debts except one. Simply choose a single debt arbitrarily and attack it with everything you’ve got while making minimum payments on your other debts.
Once that chosen debt is paid off, pick another arbitrary debt and do the same thing until all your debts are gone.
The advantage of this method is that it’s easy to implement because there’s no need to do any math; just pick a debt and start paying it down!
If you have multiple debts with high-interest rates, consolidating them into a single loan with a lower interest rate can save you money if only you don’t use the extra cash to rack up more debt!
You can consolidate your debts by taking out a personal loan from a bank or a Sacco to pay off your debts.
Just be sure to do your research and understand the terms of any loan or credit card before you apply so that you don’t end up in more debt than you started with.
This strategy involves contacting your creditors directly and requesting them to lower your interest rates or monthly payments or both!
While this might sound like a long shot it never hurts to ask and if nothing else, it’ll give you some practice in negotiation which could come in handy down the road!
If you’re struggling with debt, don’t despair, there are plenty of options available to help you get out of the hole and get back on track financially.
Try any of these strategies and see which one works best for you; before long, you’ll be well on your way to becoming Debt Free Forever!