The elimination of debts is difficult. Sometimes you will feel good about it and sometimes you will feel as if you are trying to get out of a hole that keeps getting deeper and deeper. Money is often perceived as a simple matter of numbers and mathematics. In personal finance, money is more about income, debt and budgeting, however, money is a very psychological thing. It provides you with security, comfort and, in a way, happiness. The key to getting out of debt is not to live beyond your means, but this is a difficult thing, with all the ways that can baffle you from your goal.
The first step to getting out of debt is to stop getting into debt
In other words, cut your credit cards and cancel all your lines of credit. Since you are already in debt, there is no reason to maintain the use of credit. Credit cards, in general, are a way for businesses to take advantage of your debts. Of course, credit cards can be convenient and can provide you with money at any time as well as travel benefits, but none of these benefits are fundamentally essential. If you are in debt, credit is more of a burden than a convenience, so get rid of it.
The second step is to start saving
It’s much better to have a savings account where you can dive into the times when you really need it than to keep a credit card for that purpose. This may take a little while, but saving a small portion of your income each week will help you stay out of debt once you have paid what is due. These savings would be used exclusively for emergency situations, allowing you to get out of trouble if you are really at the bottom of the wall. It would probably be wise to keep this money a little out of reach, for example by keeping your money in an accessible savings account that is not linked to a debit card. This way you will have money when needed, but you will not be tempted to use it for purchases involving some impulse.
The next step is the most difficult. Once you’ve stopped getting into debt and have a comfortable cushion from your savings account, it’s time to attack your debt repayment. One of the most rewarding ways to accomplish this task is the snowball method. This strategy consists of paying down the smallest debts first, while paying back the small amounts of the largest debts. Once you manage to finish with the smallest amounts, you can fight against the biggest. There are several basic steps related to the snowball method:
– Make a list of your debts in ascending order (smaller to bigger).
– Set the amount you will pay for each item on this list.
– Pay the minimum amount for each debt.
– Use all available portions of income to repay smaller debts
– Once you have repaid a debt in full, add that same amount to the next smaller debt.
– Repeat for each item on the list
The theory behind this method is that once you have paid off your smaller debts, the amounts that were later used for these small debts accumulate to group together into a much larger amount that will help pay the larger debts. Although it will still take some time to pay off all of your debt, the results are instantly visible and will be very rewarding.
If the snowball method is not for you, there are other ways to focus on paying off your debts
As mentioned earlier, the key to success in personal finance is not to live beyond your means. In terms of debt repayment, you must for all practical purposes earn more than you spend. If you are not able to achieve this goal, you will have to curb extravagant spending by being more frugal. Sometimes just bringing a lunch to work instead of eating out at a restaurant every day can save you a lot of money.
You can also get another job (without the expense of other factors in your life, of course) to provide you with extra income to pay back what is owed. In addition, selling things that you no longer use can help as well.
Do not put the debt back until tomorrow. It’s time to rebuild your personal finances if your debts choke you. Taking charge of your responsibilities will be a great stress reliever and your success will give you the motivation to stay out of debt in the future.