As things started to look better after the 2008 recession, the pandemic came in and threw sand at the nation’s economy. Job loss resulted in staggering consumer debt of over $14.56 trillion. This is $414 billion up from the previous year, which is $1.9 trillion more than the record of $12.68 trillion from 2008.
With debt becoming harder to pay off, here’s our guide to getting out of debt. Here are a few things you need to keep note of and add to your checklist:
Don’t Borrow More Money
Reforming your attitude towards spending money is essential in getting out of debt. This means strengthening your resolve not to spend money on unnecessary things. Doing so will help cut off your credit card use and lessen the risk of accumulating greater debts.
Be firm and learn to live on a cash-only basis while you’re sorting out your personal finances. Avoid thinking of getting balance transfers and debt consolidation when you’re still in the early stages of grasping your financial situation. This way, you’ll shun away from making regretful errors until you have a full outlook of your situation.
Track Your Expenses and Create a Budget
Next on the checklist is to understand where you spend most of your money. Start by tracking and listing down all your daily expenses and monthly bills.
There are a lot of ways that you can do this, which include using a budget worksheet. You can also use a banking app tracker or any free money management app.
Make it your priority to find any expense that you’re willing to cut off or reduce. Cross out your spa and shopping budget.
Consider cutting down on dining out and cell phone bills. It’s also best to unsubscribe from unnecessary subscription services such as magazines.
If you can’t afford to cut off your credit card expenses, evaluate all the cards that you have. Choose the card with the best pay-off condition and drop the rest. By doing so, you’ll lessen the risk of getting tempted to spend more than what you have.
Afterward, create a budget plan to help you minimize spontaneous expenses. Exert extra effort in sticking to your budget to save as much money as possible and get out of debt faster.
Set Your Priorities and Choose a Strategy
The next step is to straighten your priorities by creating a list of debts. Specify the balance you owe, the interest rates, and the monthly minimum payment. Afterward, explore ways that you can adapt to pay off your debt strategically.
Most people opt to pay off their debt with the highest interest rate. This helps them avoid accumulating high-interest rates that can take forever to repay.
Some plan to take out loans and use them to pay off their other debts. In this case, it makes sense to pay off your credit card loans first. This will help improve your credit score and qualify you for a new loan.
Another way that people use to get rid of debt is by implementing the debt snowball approach. This strategy requires you to list your debts from smallest to the highest balance. The rule is to pay the minimum payment to all other debts except one.
Your goal is to pay the smallest debt as fast as possible. After paying off the smallest debt, you move on to pay as much money to the second smallest debt and so on. If you’re not sure which option suits you, consult a financial professional.
Opt for Balance Transfer and Debt Consolidation
In case you’re struggling to make ends meet while paying off your debt, there’s an emergency option that you can use. These are balance transfers and debt consolidation.
Balance transfer of loan refers to the process where you transfer your outstanding principal amount to another financial institute. This will help reduce your interest rate, allowing you to save money from interest fees.
On the other hand, debt consolidation loans allow you to take out a new loan to pay off your other debts. All your loans get combined into a single and fairly larger debt. Debt consolidations usually offer better pay-off terms, such as lower interest rates and lower minimum monthly payments.
Debt consolidation is ideal for people who have a lot of debt with high-interest rates or minimum monthly payments. You can opt for debt consolidation to deal with liabilities such as credit card or student loan debt.
Get Help From Professionals
Debts weigh a physical and mental toll that may be hard to pull off alone. The good news is that you don’t have to take on the challenge alone. There are many available experts who you can consult to help you handle your finances.
Through financial literacy, a consultant can help bring you closer to having healthy finances. It’s important to understand that getting out of debt isn’t dependent on how much money you make. High-income people who spend recklessly can stay mired in debt, while those who earn less can live debt-free.
The key lies within your spending attitude and habits, which you can learn to improve. The sooner you develop a good financial habit, the sooner you can get out of your debt and reach financial security. As such, don’t be afraid to reach out to a trusted financial adviser.
Start Getting Out of Debt Today With This Checklist
Living in today’s consumer-driven society makes it difficult not to give in to spontaneous spending. Unfortunately, giving in to the urge to splurge is the main reason why many people are struggling with paying off their debt today. If you’re one of them, increase your chances of getting out of debt by following this checklist.
Did you find this article helpful? Go on ahead and check out the rest of our guides. Discover more tips and tricks in maintaining healthy financial status today!