Debt is to life what jail is to criminals. It will leave you bound, constrained within the walls of poverty. Debt is good if used for all the right reasons. My problem though is when it becomes your main source of income yet still the greatest expense on your payslip. It won’t be long before you crawl into the dens of despair, and there’s no turning back once you’re down that rabbit hole. Depression is your next destination.
However, you can avert this quagmire before it’s too late because being in debt is not so rosy. Debt limits you in the following ways:
- Blocks you from qualifying for loans
- Blocks you from employment due to credit checks
- You can’t save enough for investments
- Financial Stress
- Reduced happiness
- Increased expenses
And despite this problem, many Americans are still endowed with expensive debts. The average American has a debt of $90,000 as of 2018. And if you check well, this is directly correlated to happiness levels. It’s no wonder suicide rates and mental sickness are at an all-time high. It’s time to take personal finance seriously and learn how to manage your money and get out of debt. These 5 amazing tips will fast-track you into your journey of becoming debt-free.
1. Know your debt
Fighting an enemy you know nothing about guarantees you failure. So to get rid of your debt, you must first understand where it comes from. If you have more than one source of debt, list them down starting with the largest one to the smallest. This will help give you a glimpse of your obligations. While at it, include the properties of each debt including the interest rates, the due dates, monthly payment, total balance, and any other information. This allows you to plan effectively and create an awesome strategy to get rid of your debts.
2. Pay more than the minimum requirement
The minimum payment is a strategy used by debtors to keep you in debt for a long period. What you don’t know is that they end up profiting a lot more from interests with every installment. If it is possible to pay more than they are asking for, the better. But if not, the minimum pay is still better than no pay.
3. Clear small loans first
You need to prioritize your loans. Make a list of all outstanding loans and then identify the ones that need to be tackled first. Ideally, people tend to start by repaying the costliest loan. Some might be tempted to repay the smallest loan first. But you should eliminate the smallest one before moving on to the next smallest loan. This "debt snowball" strategy helps you ease some pressure because the number of loans reduces.
4. Renegotiate your debt
You can speak with your lender to renegotiate the terms of your debt. This is especially effective as it allows you to lower the interest accrued on your debt while allowing you more space and time to focus on repaying the debt. Some strategies in negotiating your debt include paying lump sum at lower interest rates, extending the loan terms to pay less monthly payments, consolidating your loans using third party debt settlement companies, etc. The best way to follow this channel is by the help of a financial advisor or coach or someone who’s well versed in debt management.
5. Cut off unnecessary expenses
As rhetorical as this sounds, it’s one of the best ways to manage debt. It can actually prevent you from getting into debt in the first place. In simple terms, unnecessary expenses is anything that you can do without. For instance, you don’t have to eat out every day, you don’t need your cable TV or that expensive cell phone plan, or a new phone. In fact, hold back any luxury spending until your debt is cleared. It will be tough at first, especially if you’re used to luxury, but with time, you will realize you actually never needed them.
6. Make a budget and stick to it
Unfortunately doing this tends to be great in theory, but in action, we all know how it goes. But believe me when I tell you that you can do this with the right mindset. This allows you to identify areas you can cut down unnecessary expenses as well as where you can save more. Furthermore, a budget gives you a clear vision of where your money goes allowing you to allocate enough for clearing your debts. Sticking to a budget is hard but defaulting on your loans is even more painful.
7. Get a part-time job
It’s a no-brainer, right? If after all your necessary expenses you find yourself struggling to pay the minimum requirement for your debt, then it’s time to either ask for a raise, get a new job, or get a part-time job. With the extra cash, use the above strategies to clear your loan. You can sell things you don’t need in the house or open an online shop to sell items. The possibilities are endless, especially in this internet era.
8. Stop investing or saving
Sounds counterintuitive, right? But holding back on investing and saving will help you have enough money to settle all your debts first. Because while you want to invest to create more income to clear your debt, the risk of that investment backfiring is too high and that can lead to defaulting. Instead, what you want is to channel all your energy into clearing debt first, and only afterward can you begin saving and investing. And with peace of mind and sound judgment, you make better investment decisions.
Parting shot
I’ve come across a lot of single moms and women embroiled in debts, from student loans, mortgages, to credit card debt, and one thing they all have in common is a lack of financial guidance. My goal as a financial coach is to emancipate you from the shackles of debt and give you the much-needed guidance to propel you into financial freedom. With these 8 strategies of clearing your debt, I’m sure I’ve you up on a pedestal to that journey.
Disclaimer:This is not a legal advice I am not a legal and /or financial advisor or investment advisor.This is a blog post about helping you to manage your money all information found here, including any ideas, opinions,expressed or implied herein,are for informational, entertainment or educational purposes only and should not be construed as personal or legal advice or investment advice while the information provided is believed to be accurate,it may include errors inaccuracies.To the maximum extent permitted by law Fixyourbrokenfinance disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/ or recommendations prove to be inaccurate, incomplete or unreliable,or result any investment or other losses.you should consult with an attorney or other professional to determine what may be best for your individual needs.your use of the information on the website or materials linked from the website is at your own risk.
Read our full disclaimer page for more information.
