Millions of people are in debt. But the biggest problem is that the vast majority have a hard time getting rid of it.
Debt is caused by plenty of things. From having to move to a new house to fulfilling your most luxurious dreams, everything costs money. And if you don’t have the money for it, then you’ll probably borrow it. This is how we fall into debt.
But even if the subject is quite depressing, there are many ways to get out of debt. In this article, we will look at the best ways to do that. So with all that said, let’s start.
Pay More Than the Minimum
When we’re in debt, we have a certain financial obligation to pay each month. This is different for most people, but what everyone can do is pay more than their minimum payments to get out of debt much faster.
Let’s assume that you’re $20,000 in debt. Let’s also assume that your monthly rate is $500. Whenever we talk about monthly payments or rates, we also have to take into account that most people also pay interest on their debt. If your APR is 15%, then that means you’re paying 15% more on an annual rate. To pay off $20,000 worth of debt, it will take you 40 months or 3 years and 4 months to pay it off if you pay the minimum, which is $500.
On top of that, you’ll also pay 15% for each year. That will increase the time it will take to repay the debt. But if you manage to pay more, then the time it will take to pay it off will decrease. The APR will also be much smaller if you manage to do that.
So by putting more money into repaying your debt, you’ll get out of it much faster.
There are all kinds of loans that ultimately contribute to us being in debt. Some of the more common ones include auto loans, mortgage loans, student loans, personal loans, and more. If you have more than one loan, then what you can do is try and refinance the accumulated debt. This simply means getting more favorable rates by repaying these loans with another.
Refinancing is very common and it can be a very smart strategy to get out of debt much faster. There are all kinds of ways to refinance, but it’s safe to say that not every method will work for you. Some might benefit by taking a debt consolidation loan, while others from transferring the debt to a balance transfer card. Each has its own strengths and you’ll need to do your research to figure out what works best for you.
Some of you might not even be able to do that, but this is only in extreme cases.
Stick to a Budget
Coming up with a plan on how to get out of debt involves not getting into more financial trouble. This is the bare minimum that you need to do. And to do that, you should create a budget and stick to it.
Creating a budget is a very smart financial strategy that will make it possible to easily manage your finances. Not only that, but a budget will also tell you exactly how much money you have to spend and how much of it goes into monthly payments and essentials. When you create the budget, you’ll know exactly how much money you have to work with.
Creating a budget is very easy and doesn’t require access to professional financing tools or software. All you need to do is simply write down how much money you earn, and list all of your expenses. Under expenses, you can put anything such as mortgage or rent, insurance payments, groceries, etc.
If more money goes into expenses, then you’re in big trouble. You will need to find ways how to start saving money, otherwise you’ll never get out of debt if you make less than your monthly expenses. In that case, you’ll most likely have to cut back on certain things such as television or other expenses.
If you’re spending quite a lot of money on nonessential expenses, then it’s time to change a few things. Instead of driving to work, give carpooling a try. Instead of buying overpriced foods at the grocery store, try to look for alternatives. There are many ways to save money even on essential things, all you need to do is find the better alternatives.
Start Earning More
The easiest way to get out of debt is to earn more than what you’re paying in monthly payments. If you’re earning around the same as your monthly rates, then you’ll need to look for a better job or find alternative sources of income.
Getting out of debt on a low income is very difficult for many people, and impossible for many more. If it would’ve been that easy to find another job, no one would’ve been in debt. But the fact still remains that you need to start earning more than what you’re paying. The faster you do that, the faster you become debt-free. And the faster you become debt-free, the more money you’ll have to spend on things you want.
It’s safe to say that getting out of debt is a process that can take years if not decades to do. But you can always find clever ways to help improve your overall finances. A lifestyle change is the easiest thing to do, but we also hope that the 4 other ways we mentioned will also help you do that.