5 Steps For Getting Out Of Debt
While being in debt is a terrible feeling, getting out of debt can feel like a large uphill battle. That doesn’t mean that it’s impossible though. Many people struggle with getting out of debt because they don’t know where to start. Fortunately, there are several ways to start tackling debt, regardless of how much you have.
1. Figure out why you’re in debt
The first step towards tackling your debt is to reflect upon what brought you to this point. Oftentimes debt can be attributed to overindulging and over-borrowing. It can also be the result of an event beyond one’s control, such as a medical procedure or divorce. Reflecting on what events or bad spending habits or factors contributed to your debt will help you determine how to get out and stay out of debt.
If you can’t quickly pinpoint where your debt is coming from, try tracking your spending for a month. At the end of the month, categorize and total all of your expenses. If it seems like you’re spending an abnormal amount in any category, that might be the source of your debt. In general, tracking your expenses is a great habit to get into and with plenty of apps that help manage your expenses, it's easier than ever!
2. Determine how much debt you have
Grab a piece of paper or open a spreadsheet. List the name of every financial institution to which you owe money, how much you owe, the interest rate, and the minimum payment. After this exercise, you should have a good idea of exactly how much debt you have.
3. Set a goal
Once you have identified how much debt you have, use your monthly budget to determine how much you can contribute towards paying down your balances each month. Estimate how long it will take to get out of debt by dividing your total amount of debt by your estimated monthly repayment amount. Make this timeframe your starting goal.
4. Start making payments
Now that you know why you’re in debt, how much debt you have, and how quickly you want to pay it off, it’s time to start paying! Make your monthly payments religiously, paying extra whenever you can. Track your progress every month to make sure you’re on track to meet your goal. Create (and celebrate) debt milestones to help you stay motivated!
5. Avoid more debt
Avoid using your credit cards while you’re paying down your debts. You can’t get rid of your debt by adding to it! If you feel that you might be tempted, get your credit cards out of reach. Give them to a trusted friend or family member to hold on to or literally freeze your credit cards by putting them in a bowl of water in the back of your freezer. If you need to make a large purchase, consider using Perpay. Instead of adding to your debt, you’ll be able to pay over time interest-free with small & automatic payments.
By the time you’re done paying off your debt, you should have developed healthier spending habits that will help you stay out of debt. Remember, paying off debt is rarely an easy or smooth process. If something throws you off course, don't get discouraged. Instead, pick back up with your payments as quickly as possible and continue on. Just by reading this, you’ve made a smart decision! Good luck.