Getting out of debt is a common goal for many people. A life free from the weight and stress of being in the red can sometimes slip out of being a reality and seem like a far off dream. Beating debt is a very achievable goal but it takes the right approach, a clear plan of action and then the determination to commit to that plan.
Before you get started on the number crunching part of this process you need to make sure that you’re armed with the right attitude. Part of the reason that debts can escalate even during a period of time where it would be possible to eliminate them is that it’s tempting to ignore the situation or make up reasons to excuse it. Bills are ignored, spending goes unchecked and even increases because it’s easy to think that since you’re already in debt it doesn’t matter what you spend.
If you are serious about getting out of debt for good then excuses can’t be part of the picture and neither can shying away from facing up to your situation. Whatever the amounts owing you can make a plan to pay it all back but you’re never even going to get off the ground if you’re not willing to take a deep breath and face up to the challenge ahead.
If you don’t feel up to doing this by yourself then you can reach out to family, friends or find a support group. Using a support group, on or off line, is a great way to get advice on both the financial and emotional aspects of debt repayment. You will be able to meet people in support groups who beat much larger debts than yours while equipped with less means than you possess. This is a vital reminder that you’re not working on a pipe dream but a solid, real life goal.
Once you’re ready to square off to the problem gather up all the information you have regarding your debts and make a debt overview on paper, a spreadsheet package or both.
You want to be able to easily see who you owe money to and the individual amounts as well as an overall total. List the interest rates being paid and any other salient details.
This overview is your challenge, the next step is to make an expenses overview and an income overview. These two new overviews are the fronts upon which you will step out to meet the challenge.
First up list all your expenses or outgoing funds. It’s important not to skimp on the details you’re not proud of. If you buy a tasty lunch at work everyday instead of eating packed sandwiches or treat yourself to a fancy coffee on the way home then this needs to be listed. You cannot just avoid listing the things you do not want to give up.
Once you’ve got all the expenses detailed you need to go through the list and remove anything which is not necessary. Necessary cannot become a subjective term. Necessary means what you need to have a home, eat and work. TV channel subscriptions are not necessary, cigarettes are not necessary, nights out at the bar because all your friends go every Friday are not necessary.
Keep in mind that the sacrifices you’re going to be making when you trim the expenses budget are short term, you’re not giving up your fun and comforts forever. In fact when you reach the end of your repayments your frugal living will have erased some of your bad habits, you’ll enjoy and appreciate your treats more since they will be treats and not just everyday extravagances. You’ll also be running an efficient budget giving you money leftover to ensure security and have fun as well. Weigh all that up against a short term session of belt tightening and the one clearly outweighs the other.
Once you have eliminated all unnecessary spending from your budget you need to look at all your necessary items and consider whether they can be downsized in any way. You could get a smaller flat or house, renegotiate bills, sell a car and opt for public transport or create a more economical grocery shopping plan.
With the expenses budget as small as you can get it you will now focus on making your earnings and income overview. List your job, any investments or any other form of income you have.
Your options to boost and maximize your earnings include working more hours, getting a second job or using your initiative to create new income streams. You might decide to turn a skill into a business. You might offer English classes to foreign students if you live near a school or university, you could walk a neighbor’s dog, babysit or even set up classes in your home tutoring people on how to create a good budget once you have the hang of it.
Creating new sources of income requires some creativity and initiative. If you get stuck on your ideas or approach reach out to your support network and see if they can advise you on how to apply your skills and time to generate income.
With a maximized income and minimized expenses you will have a budget which you can use to make monthly debt repayments. If this budget is way too small then there are a few options open to you.
You could take out a low interest loan and pay off some of the debts this way. You would then need to stick to your budget and repay the loan. Loans are also worth considering if you have very high interest debts such as debt on a credit or store card. By transferring the debt down to a lower interest rate you improve your situation dramatically.
Another alternative is to cash out an investment if you have one. This option should not be undertaken lightly as you are essentially juggling financial security around even as you are trying to stabilize it. Remember if you take this option that you should view it purely in terms of the interest being earned on the investment versus the interest being charged on the debt and how much this will cost you in the long run. Don’t just cash the investment out and then go on spending without restraint, you’ll just end up right back where you are now but with no investment to bail you out.
Take stock of your possessions. Is there anything which can be sold or rented out? Are there any items which you could tie in with your income expansion plans and form into an avenue of earning?
Once you have got this far you will be armed with your repayment budget. Look at your debt overview and apportion the budget across your debts in consideration of the interest rate being charged. Higher interest debts should be higher priority for the bigger chunks of the budget. You want to aim to make minimum repayments on all debts every month.
Ring up all the companies on your repayment list and appraise them of your plan to commence paying off your debts. You want to try and ensure that the debt will not be sold on. Companies sometimes get rid of debts they are not able to collect and the new company may slap on a charge and also initiate a higher interest rate on the debt. You want to avoid this if at all possible.
Getting a bit of familiarity built up between you and the company is also a good thing. If something goes wrong with a repayment it will be in your interest for them to know you are serious about trying to settle the outstanding balance.
Keep a close watch on your finances as you progress through repayments. If you have more funds than you expected one month then pay a bit extra on your debts. Do not get carried away by stripping your bank account bare every month in order to repay the absolute maximum you possibly can. By doing this you may leave yourself open to bank charges if you get hit with an unexpected bill or an incoming sum fails to materialize on time. Keep a cushion in your account to absorb the shocks of any unexpected financial ups and downs.
If you know you’re going to miss a payment then make contact with your debtor and explain your situation. In many cases companies will not exercise the full extent of their charges in consideration of your having kept to a steady system of repayment.
During this time of repayment make sure that you do not stack spending onto credit cards that you are trying to pay balances off on. Take everything off the card which does not absolutely need to be paid via that method.
As you progress with your repayments the going will get easier as the interest charges get smaller. You will find in time that your budget starts to make more of an impact on the debt. As you approach the end of your journey you may want to ease your spending a little bit and start to live your life fully again. Make sure you stick with your repayments until the end however and don’t leave any small amounts hanging around which could escalate. Plough some of your extra money into a savings account or secure, fixed rate investment.
On the other side of debt you will be living a more financially efficient lifestyle, you will appreciate the things you spend your money on more and you will be building up savings which means you can afford the things you want and be secure at the same time, all without the worry and hassle of debt!