It is very important that we all learn the principle on how to get out of debt ,whether you are planning to take up a loan or you already have a debt this will help you in repaying loan fast.
Regardless of your income status or credit status, the principle of getting out of debt is the same. Always spend less than you make and use the extra towards paying off your debt.
It can be hard deciding how to get started or which one prioritize, that is why we have listed tips that work on how to get out of debt,these will definitely leave you happy in repaying your loans.
Get out of Debt With Low Income, Broke or Bad Credit Score
Here is a step by step guide to help you get out of debt, become debt free and regain your financial freedom. Even if you have no job, a struggling student, you have a low income or a bad credit ,this step-by-step guide can help you build a debt payoff plan.
Let’s walk through the steps and help you get out of debt and live a financially happy life!
STEP 1. Find How Much Debt You Owe
The first thing you need to do is find out how much you owe to be able to plan how to handle the debt.
Write down every coin you owe from financial institutions, credit cards,mobile lending platforms,family,friends,students lending boards and others . This will help you develop a debt payment strategy.
Indicate how much you owe each, the interest rate it’s running at and the payment e.g the monthly instalment.
If you are not sure of the interest rates find out so as to know which ones are accruing at higher rates. Why? Because high interest rate debts could slow your success to get out of debt than low interest rate debts.
If you find your total debt being too high for you, you don’t have to get worried
-There are more people with a debt like yours and a lot more with a debt more than yours.
Ones you know how much in total your debt is then that is the beginning of the end, the beginning of your financial freedom.
You need to take note of the debts that attract a penalty on early repayments so as to know the best way to go about it.
Now, let’s get to work.
Step 2. Time to Choose your Approach.
Once you have the total amount, it’s time to put a repayment plan together to get out of debt.
You need to track every months payment and not throwing money in different debts , if you do so you will be left feeling like you are not accomplishing much.
The Best way as it worked for me too is to focus on one debt at a time then go to the next one as you progress, this as you make minimum payments to other loans.
So the question is, how do you decide which debt to start with?
There are two methods you can choose to make use of;
“Debt Snowball Method” and the “Debt Avalanche Method.”
Debt Snowball Method
With this option, you prioritize your debts from smallest to the biggest, ignoring the interest rates for now.
You therefore start by paying off the loans or debts with the small balance regardless of the interest rate they attract.
While paying off that debt you make minimum payment on all other debts. This means you make the required monthly payments to the other loans.
Debt Avalanche Method
The second option is where you start repaying your debts from the highest to the lowest, ignoring the loan size.
This method is almost similar to snowball concept except that your goal with this method is to minimize interest costs.
Since you are paying the debts accruing high interest rates you will end up paying less interest to your financiers.
You therefore start to off the debt with the highest interest rate, regardless of size. Then move on to the debt with the next highest interest rate.
This is the method I prefer more, I used it when I was stuck in debt after leaving the corporate job.
Why choose avalanche over snowball? By eliminating high-interest costs first, you put more of your cash towards actual principal over time. This means getting out of debt somewhat faster and cheaper.
Decide which debt you want to begin with.
Would you prefer to start by paying off small debts, or paying the least amount of interest?
Both methods have their benefits. The debt snowball may not be the cheapest way out of debt but it is one of the most effective .
Becoming debt-free can be a long process, depending on where you are starting ,at the same time it get’s exciting once you begin paying off the first loan.
To proceed at this point, choose the method that you are comfortable to begin with.
STEP 3. Start Making Financial Changes.
You need to begin taking actual financial steps towards being debt free. Here are some ideas that you can consider towards paying off debt.
- Sell the items you don’t need
We often have items in our homes that we no longer use or we never used after purchasing them, selling them off will be a good start off in repaying your debt.
Look for those extra items you don’t use like the dishwasher,hoofer, toys that kids have out grown,kitche items. You will actually realize you have items that you bought and never used them.
Doing this will help you make better purchasing decisions next time.
- Get Rid of Your Credit Cards
Credit card debt can be so messy, you are at the beginning of paying off a debt, it will not be sensible if you are working on getting off debt and still adding more on the pipeline.
It’s time to have your card frozen, cut it up and get it out of your reach.
I believe by the time you are done with repaying your loans you will be more careful on getting credit cards and how you spend.
- Move House
How much out of your income do you spend in paying monthly rent? If you feel like you are spending a big part of your income on it then it’s time you decided to move to a smaller house paying lesser.
This will see you remain with some extra cash that you can use to repay your loans.
- Sell Your Car
Do you have a big car payment? A big expensive car means high repayment and high insurance cost. You need to decide selling it and getting a second hand which is cheaper to eliminate the debt and reduce your insurance cost.
Look for a good used car, just get a good mechanic to have a look at the car condition before making the purchase.
If you have two cars at home, you need to decide on selling one and save on insurance and gas cost, you can use one car and use the proceeds on repaying on of your loans. There is no need of keeping 2 cars and struggling financially.
- Hold on Investments
Having a savings plan is important and we recommend it always but putting up an investment or savings while having a bad loan does not make financial sense.Hold saving for now unless an emergency fund then divert it into loan repayment atleast for now. It’s only shortterm then you can go back to automating your savings. ‘
- Stop the paid TV options
Internet is now more than ever easily accessible , you can watch news, sports, programs online at no cost or very little cost.
Some countries even have free channels. Disconnect the paid movie cables ,doing so will leave you with extra money in your pocket.
STEP 4. Create a Budget
Creating a budget will help you to know how much you will need to put aside for debt repayment every month. You definitely want to know how much you can put towards debt each month.
A budget is meant to make you understand where your money is going. You will especially be able to point out when money is going to unnecessary things so you can stop and spend it in a better way.
How to Make a Budget
It’s not complicated to make a budget, you can always adjust or change it any time too.
How to make a Budget to get out of debt:
1. Record down how much money you make.
Write down the exact amount you make or earn every month or pay time, this is what you will work with.
2. Define your primary expenses.
List down all the must do expenses ,these are Housing, utilities, groceries, insurance ,school fees.
3. Write down your debt payments.
Write down the amount you need to pay monthly for all your debts, that is the minimum payments or what you are required to pay.
4. Write down your regular expenses indicating a reasonable amount each
Having different budget categories will help you know where the money is going.
We all have regular expenses like medical cost,home repairs,salon,pet,gym etc Not every item has a monthly cost but its important to allocate a budget for them so you can be able to cater when the need arises.
You may consider cancelling some categories like gym and work out from home. The money you save out of this will help in loan repayment.
5. Allocate remaining money between debt payment and quality of life expenses.
After going through the steps 1 to 4 you will have some money at hand. It’s time to divide the money netween det repayment and having some fun.
As much as you want to focus on becoming debt free you also need to remain sane by having some good time sometimes. Allocate some money for a movie night out, dinner this will keep you motivated.
If by chance you notice you have little money left the go through the main expenses again and regular expenses noting that months are diffefent and income may change sometime, you can therefore amend categories or shift expenses so you do not get stuck to get out of debt.
STEP 5. Negotiate for Lower Interest rates.
Consider having a discussion with your financiers to lower your interest rate. The less interest you can pay to your creditors, the faster you’ll be able to get out of debt.
Refinance Your Student Loan
Is your student loan frustrating you?You may be able to refinance to a lower rate and shorter term.
When you ask for a reduction of the terms of your loans you will pay more monthly but for a shorter period, this saves you from paying a lot of interest.
Consider a Loan Transfer
Can’t sufficiently lower your interest rate? Consider a balance transfer, which lets you move debt from one creditor to with a lower rate . You may even find a company willing to take up your credit card sometimes even at 0%.
With a credit transfer you are paying off one credit card with another. But if the rate difference is wide enough, it could save you money. Make sure you get all the details before starting a transfer. Many balance transfer cards charge a transfer fee of 3% to 5%. And they may have limits on how much you can transfer.
Consider this option only if you are serious about paying down debt, make sure you pay off the balance during the 0% period.
STEP 6. Work on Your Spending Habits.
Work on your spending habits, it may not be easy at first but you will get used to it with time, remember
Some Tips that will help in Improving spending habits
Stop Eating Out
Avoid eating out often, you can for so atleast once a month, you will be surprised how much you are able to save by eating at home and even carrying your packed lunch to work.
Avoid Impulse Buys in the Grocery Store
Make a list of the items you plan to buy on your weekly grocery store shopping, you can work on a weekly meal plan and build a list around it.
Once you’re in the grocery store, stick to your list! You can have a snack before heading to the store to avoid impulse snack purchase.
Avoid Night Outs
Having fun is one way of staying save but you need to go down on spending out on night outs. People spend a lot of money on nights out , drinks and shopping trips with friends. If you want to get out of debt and still going on fun spree will not be making a progress.
You can have friends come over to your place instead and you may eventually influence your pals or coworkers in saving to repay debts.
Step 7: Begin to Pay More than the Minimum Monthly Instalments
Before you start this confirm whether your loan charges prepayments. The best way toyou’re your debts down is to pay more than the required monthly instalment.
Doing this will speed up the repayment processes and help you save money that you could have otherwise paid as interest.
STEP 8; USE THE EXTRA INCOME SOURCE
Sometime may receive an usual income like a pay rise, bonus, tax refund. You can make use of these funds to make lumpsum payments towards your loans.
STEP 9: Increase your Income
To become debt free and begin enjoying financial freedom, you need to start thinking outside the box on ways to increase your income.
Ask for a Raise
If you have beenof value to your company, asking a payrise will not hurt.
What you need to do is to work on your skills, volunteer in some roles and eventually your boss will notice you, give you a higher position or even increase your pay because you will worth the pay.
Start a Side Hustle
There are various ways that you can make extra income working a few hours weekly from home. Allocate time ,create an income goal and work towards it.
Some of the ways that you can earn extra is through online surveys, allocate time to go through the surveys sents to you regularly. Some of the survey sites that you can get started include; Inboxdollars, Swagbucks, Survey voices.. See a list of sites to get started
Become a Freelancer
You can set yourself up as a freelancer and sell your skills at a cost.
It cost zero to get started, you can get started with blogging , See how to start a blog, Freelance writer, Virtual designer, digital marketer. Visit sites like Fiverr.com , Upwork.com, Freelancer.com .
Conclusion
Whether you have big or small debts, getting out of debt is not hard, whether it’s credit card debt, student loan debt,car loans,personal loans you can be debt free if you stick to the plan
If you pick some of the above strategies and apply them to your plan you will get out out of debt fast and begin living the life your want.