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Debt settlements made easy with our top 6 tips! To know more, go through this article and get a hold of your debt.
Debt- something that we all wish to never have to deal with. If you are unaware of how to get out of debt and get stuck, you might be in trouble
If your financial background is not strong enough, it usually takes all that you have got just to manage with monthly bills and save for the future.
The pressure of debt is just an insult to injury.
You can fall into debt for various reasons- be it pending credit card bills or failure to pay monthly instalments on your personal loan.
In worst scenarios, the repayment of debt alone eats up all your savings- making it difficult for you to cope on a rainy day.
A large enough debt can even submerge your assets.
But worry not! Getting out of debt might be a back-breaking task, but remember that it is NOT impossible.
There are plenty of ways to get rid of debt. Some of them might even save your savings and assets from decapitating due to catastrophic debt.
However, before we dive into learning the various strategies for coping with debt, make sure to organise all of your debts and bills!
This first step is important for you to get things clear in your head and will further make sure that you target the right thing.
Go through your bank’s and credit card statements for at least the past 6 months. Then, carefully list down the recurring debts, loans, bills, or any other fixed expenditure.
Once this statement list is ready, analyse and determine the areas that need your attention almost immediately.
Try to focus on the most painful parts in order to cope with debt quickly. Make sure that you are not skipping any important payments like interest, etc.
As soon as things are subtly placed in front of you, you can start framing the strategies to tackle them!
5 strategies to get out of debt on your own:
1. Don’t waste your time Paying the Minimum Amounts!
No doubt, if you wish to jump out of your debt nice and clean as soon as possible, you can’t continue just paying the minimum payments.
Focus on what you can afford to pay to the maximum and do it!
To do this, you will need to first check your budget and determine what extra payments on debt you can afford.
When you pay more than the minimum, you will save money on interest payments and eventually get out of debt faster.
Therefore, the more, the better. But don’t try to stretch your budget too much. Make sure you have some room left for your own necessary monthly spending.
2. Debt Snowball Strategy
Ever heard of the debt snowball strategy? Well, it is one of the most convenient and fastest methods to get out of a debt trap.
Under this method, it is advised to pay off your debts and loans starting with the smallest.
Once you are through with this payment, divert your focus to the second-smallest debt. This cycle should continue till all your dues are settled.
However, this method doesn’t entail ignoring all your other debts while focusing on one.
What you are actually supposed to do is continue paying the minimum amount of your debts, except the smallest one.
You have to pay the maximum amount for the smallest one!
The main rationale behind this strategy of ‘snowballing’ is to shift your focus to one debt at a time instead of one.
When you do this, you will hold on to the momentum and find it easy to stay on track with your dues.
3. Try to Refinance your Debt
If you find the terms and interest rates of your current debt too harsh to handle, you can try to refinance your debt.
Debt refinancing typically means replacing your current debt with a new one- the one with more favourable terms.
Generally, the main aim of debt refinancing is to reduce the interest payments.
In most favourable cases, along with the reduction in the interest rate over the life of the loan, there might potentially be a restructuring of the payment schedule.
You can save thousands through refinancing your debts and pay off your debt quite quickly.
You can consider refinancing your mortgages, auto loans, personal loans and even a student loan!
For the repayment of your loans, you can consider taking a Debt Consolidation Loan.
This type of personal loan generally has a lower interest rate.
If you are struggling with credit card debt, you can transfer your debt to a Balance Transfer Card.
With their unique feature of 0% APR for around 6 to 18 months, they will help you cope with the debt quickly.
4. Shift the Focus of your Windfall Gains
If you are lucky enough to lay your hands on an unexpected gain like tax refunds or stimulus checks, you must commit them to the repayment of your debt.
Instead of just saving all of it in your bank account or spending it all for fun, you can at least use 50% of it towards your debt payments.
Other windfalls like cash bonuses, work bonuses, inheritances, etc., can also be diverted towards your debt payments.
Just know that each of these little steps is accomplishing your one big goal- getting out of debt!
5. Make sure to Re-Examine your Budget- try Spending Less
You can repay your debt through two alternatives- earn more or spending less. In most cases, the former may not be convenient for many.
Taking up an additional part-time job or side hustle may just add to your stress. But one thing that is definitely possible is the restructuring of the budget.
Spare some time for yourself and list down all your expenses. Out of this long list, track each item based on its level of importance. Now you know what to do!
Once you know where you can cut down on spending, do it. You are not required to ignore your needs, but focus on your wants and eliminate spending on them.
When you feel you have finally made all the necessary readjustments to your budget, use up your spare money to repay at least some part of your debt.