Life’s demands can at times have us in a tight-spot financially forcing up to incur debts such to meet our needs and wants. Having debt is understandable but should not be a life-long norm. It is possible to have a proper grip on your finances and manage them in a way that unshackles you from the chains of debts. Below are six tips that can help in that regard.
1. Stop Creating New Debt
In as much as people will undergo some kind of education or training, few will learn about money management and the benefits of living within one’s means. Debt is at times an inevitable thing for most people and getting out of it is something they find to be a tough hurdle. However, it is possible to get out of debt. It all starts with adopting sound financial habits.
Make a firm stand regarding any financiers or marketers that lure you with easy financing options; their goal is to profit from your hard earned money. Strive for financial peace of mind instead of hungering for more new stuff (much of which is not a necessity in life). Turn a blind eye to your credit cards and give a second thought to any purchases you make.
2. Know Your Debts’ Interest Rate
List down all your debts by amount ranking them based on their interest rates. Given priority to the debts with the highest rate and pay them off before you focus on the small ones. It is a Stack Debt Management Method that helps to quicken paying off debt.
Interest is the tool financiers, and financial institutions such as banks use to make a profit. The tool is highly efficient and works against you and your financial prosperity. It increases the amount owed, and most people are unaware of how much that amount may be.
For instance, you have a $10,000 credit card debt with a 20% interest and a payable minimum of $200 per month. It most likely will take you around 9 – 10 years to pay off the debt amounting to $21,680 and an interest amounting to $11,680.
3. Try To Lower The Interest Rates
Doing a balance transfer can help in lowering the interest rates on your credit cards. In short, you move your credit card to another bank that offers to reduce the rate in a bid to get your business. The strategy here is to shop around for a bank that has the lowest rates with the most extended duration. Remember to carefully go through the terms and conditions to avoid any clauses that may trap you financially.
4. Spend Wisely, Have Strategic Expenditure Plan
It is a strategy that works along the lines of the first step mentioned above. You should plan your expenditure (the best approach is to have this in writing noting your income after tax and the payments on all your debts).
Go over the expenses ranking them per their importance and them see which of them are not worth having on the list and which can be at the bottom for a temporary period. Your list will help you create a strategic plan for your spending to help you avoid having expenditure that is higher than your income.
Determine with areas of your spending are vital and how you can achieve them will lower the costs. Allow money for those that are a constant, such as rent, education, and Medicare to avoid having too deep into funds allocated for other areas. Set aside a “Fun Account” where you put in money for your extra-curricular activities and also remember to fund it accordingly.
Make arrangements, in your Strategic Spending Plan, for how you will pay off debts. Set an amount that you will use to settle your debts (weekly or monthly), and commit to it without fail. Find ways of saving money from your expenses and direct that amount to settle a debt. It could be $20, $60, or more that you can add to your set amount for paying off debts.
5. Have Repayment Schedule
First, you should know the minimum repayment on each debt. Always remember that you incur a fee (penalty) every time you miss a payment, and this can add up dramatically. Therefore, give priority to the debt with the highest interest rate working your way down the list.
Implement the Stack Repayment created in your Strategic Spending Plan to the debt with the highest interest rate, along with the minimum payment, until you fully settle the debt.
The objective is to reduce the minimum payment as you add an increase the Stack Repayment amount whereby the minimum repayment drops in equal measures to the increment in the Stack Repayment. The method quickens the settlement of the Target Debt by increasing the repayments you make. If you can’t stick to that and need more help, try this.
6. Reward Your Progress
The goal of tracking your debts is to see your progress in your efforts of becoming debt-free. Take the time to identify, celebrate/reward yourself for the milestones you achieve. The rewards should not be expensive if you to dip into monies as allocated in your Strategic Expenditure Plan. Rewarding yourself is a means of keeping yourself motivated by gains achieved and to keep you striving for better.
Just like how you trained yourself to observe a particular shower habit or how to brush your teeth, you can do the same with how you spend (manage) your money and become debt-free.