It can all begin with a series of unfortunate events: a sudden job loss, an unexpected (and expensive) home repair, a serious illness, or a global pandemic that can knock one’s finances so off track and end up in debt. And it’s in these moments of disaster when we finally realize how precarious our financial situations are. To have an easy mind on these matters, we need to come up with ways and means on how to handle the situation with strategies to get out of debt.
The Best Strategies to Get Out of Debt and Handle the Situation with an Easy Mind
Getting out of debt isn’t easy. Fortunately, there are plenty of strategies for handling (and getting out of) debt that you can use. This is not rocket science or something that would help you right away with just a snap of a finger. The strategies presented here for you to get out of debt are a long-term process and must be done with a proper mindset.
The Impact of Debt on Your Life
Many of us think that the problem of being in debt is simply the issue of repayment but there is more to this than meets the eye. Being in debt can make qualifying for other loans more difficult (lowers your credit score).
Being in debt can also affect your personal relationships. It can cause marital problems, arguments with children or family, and even lead to lost friendships.
Your health (both mental and physical) can also be affected. You may gain or lose weight dramatically from being depressed and feeling out of control. You might also ignore health issues due to a concern about finances which can lead to more serious problems in the future.
The First Step: Audit Yourself (Debt, Bills, and Expenses)
To break out of your continuous debt-building cycle, you need to be completely honest with yourself and look at your spending. Go through your bank, financing institution, and credit card statements and write down all the recurring loans, bills together with other fixed expenses.
You should also list down the monthly payments, total balances, interest rates, terms, and any other relevant details. Double-check so you haven’t missed anything. Better yet, come up with your personal debt management plan.
Effective Strategies for Tackling Your Debt
Tackling your debt takes time and effort, but combining the strategies below and staying consistent can help you successfully dig your way out of debt.
1) Reduce or Eliminate Unnecessary Spending. With every purchase you are considering, ask yourself if this is a true need or simply a want. Do you really need a new car, cellphone this year? Do you really need new clothes?
After that, make sure to create a budget to ensure that you are on track and stick to your spending plan.
2) Build an Emergency Fund. Putting money in an emergency fund may sound counter-intuitive if you’re trying to get out of debt but an emergency fund can actually keep you from creating more debt. These savings provide you with a safety net you can use for emergency expenses, which saves you from reaching for your credit card. The ideal emergency fund holds six to 12 months’ worth of living expenses
3) Negotiate for a Lower Interest Rate. Consider calling your creditors to negotiate a lower interest rate. You’ll be surprised how many creditors will be willing to reduce your interest rate based on your payment history and account standing.
4) Commit Windfalls to Debt. When you get a tax refund or any form of bonus, add that money to pay for your loans instead of splurging on yourself. You can decide to commit the entire windfall or split it 50-50 between debt and savings.
5) Increase or Add into Your Cash-Inflow (Make More Money). You can consider asking for a raise in your current job, taking a part-time job, some freelance gigs, or even a second job so you can get more cash to pay for your debts faster. Or you can consider utilizing unused or pre-loved items in your home and sell them off for cash via eBay, Craigslist, FB marketplace, or the like online platforms.
6) Reduce Interest by Paying More Than The Minimum Payment. Paying more than the minimum will save you money on interest (for both credit cards and loans) and help you get out of debt faster.
7) Consider Debt Avalanche Method. This involves making minimum payments on all debt, then using any extra funds to pay off the debt with the highest interest rate.
8) The Debt Snowball Method. This debt repayment method involves making minimum payments on all debt, then paying off the smallest debts first before moving on to bigger ones.
9) Utilize Debt Consolidation. This refers to the act of taking out a new loan (which ideally has a lower interest rate compared to existing debts) to pay off other liabilities and consumer debts. So you end up with only one but bigger debt which you can slowly pay off.
10) (Partial) Cash-out Investments or Insurance. Although this is an option, only use this as a last resort.
Lastly, don’t forget to track your progress along the way which helps you be focused and reminds you that you’re getting closer to your debt payoff goal.