5 Steps To Get Yourself Out Of Debt
Millions of people roll out of bed each morning knowing that they will only be able to keep a small fraction of the money they earn that day. When payday comes around, not only do they have to worry about tax authorities, but a large portion of what’s left will have to go towards paying creditors, and worse yet, the bulk of those payments may not even be applied to the principle on their debts.
If this describes your life, you know there isn’t an “easy” solution. Yes, getting out of debt will take hard work and discipline, but there is a simple formula you can follow.
- Step One: Take out a notebook and write the names of all your creditors in a vertical column. To the right of their names, write your current minimum monthly payments, and in a third column, write the interest rates you’re being charged. Make sure you find out the current interest rate for each creditor since your rates may have changed — especially if you’ve missed one or more payments to any creditor.
- Step Two: Total up Column B, your monthly payments. Have you been paying at least this much? Can you afford to keep doing so? If so, skip to Step Three.
- Step Three: How much more can you afford to pay? You need to make sacrifices to get out of debt — can you commit to an extra $50? How about $100? An additional $150 or $200 each month would go a long way towards getting out of debt. Where can you cut back? If you eat out twice a week, cutting down to once a month might save you close to $300 — and once you’re debt-free, you’ll be able to eat out as often as you want without the side order of guilt.
- Step Four: Identify your debt with the highest interest rate and resolve to pay your current minimum payment plus whatever extra you can commit — $50, $100, $150 — whatever you can afford. Also, resolve to continue paying the amounts you’ve written down on your other debts. As you pay down your balances, your minimums will be reduced — but don’t succumb to temptation! Keep on paying the amounts you wrote down and not a penny less (or more — any extra should be applied exclusively to your highest-interest debt).
- Step Five: Do not take on any new debt until you reach your goals. This doesn’t mean you can’t use your credit cards — you can use them only if you can pay off the new balances in full. If you are worried about your self-discipline, don’t use your credit cards. Put them in an envelope and lock them away somewhere — but don’t cut them up! You need to keep the accounts open to rebuild your credit.
Once your first debt is paid off, apply the full amount you had been paying on that debt to your debt with the next-highest interest rate. Within the due course, you’ll be debt-free, but it will require consistency, and sacrifices.
Thank you for reading and hope you have a good rest of the day!
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