Steps to get out of debt
Carelessly spending can certainly take its toll on your finances. In some instances, it can leave you in major debt if you have made purchases on credit. Having that credit option is always a great idea for the moment. But remember, it all needs to be paid back with interest eventually.
Having a bad credit history will affect your future purchases, especially if you plan to buy a new home or car. When you apply for a bank loan they will see how you are able to manage your finances. In short, if you pay your accounts late you will be rated as a late payer. To the bank this means that there is a potential risk for them should they lend you money. As a result of this, they will then vet your application and this could result in them declining your loan application.
Here is a plan on how to get out of debt:
Step 1: List your debts
Get a piece of paper or open a new Google Spreadsheet. List down all the accounts and balances that you owe, as well as the interest rate. Include the minimum monthly payment for each account. You will now have an idea of how much debt you owe.
Step 2: Set goals
Having an idea of what you need to achieve will assist you in setting your goals. Start off by assessing how much money you can afford to pay every month. You can then estimate the time it will take to pay off your debts. Your debt divided by your monthly repayment will equal the number of months until your debt is paid off.
Step 3: Pay off debts from highest interest rate to lowest
Once your goals have been set, it is now time to determine which accounts need priority over others. It is advisable to focus on the accounts that have the highest interest rates to ensure that you do not get more into debt. Make the minimum payment for your accounts, except the account that you are trying to eliminate first.
Step 4: Don’t need it? Sell it!
By now you know how to pay off your accounts but how can you increase your income? Look around your home and identify the stuff that you no longer need. Have a yard sale or sell them online to bring in that extra cash. This will help you in your quest to get out of debt quicker. The faster you pay off one account, the more money you will have for other accounts.
Step 5: Keep on working
Work, work, work! Put in some overtime at work if you can to increase your income. Extra jobs like babysitting or part-time weekend promotions can also help you get out of debt. The more money you make, the quicker your debts can be paid off.
Step 6: Reward Yourself
When you achieve a goal, be it big or small, don’t forget to reward yourself. You do not need to spend more money to do so. A simple pat on the back or a cup of coffee will do the trick.
When you have finally paid off all your debts, you can now focus on saving for that holiday you always wanted or that new car.