Most people are now buried under heavy debt and do not know how to get out of this precarious situation. There are many types of debts that people have borrowed and, therefore, need to be educated as to how to get out of such a situation. People have mortgages, student loans, personal loans, and an endless number of credit cards to pay off. Such people, and indeed anyone else, can check out this guide to learn the best strategies to employ to get out of debt fast.
The reason most people borrow too much is that it is part of their financial lifestyle. There are people known to borrow to increase their net worth! However, this is not necessarily a bad thing as long as they repay their loans responsibly. The danger of too much borrowing is that it leads to bankruptcy. We all do not want to get bankrupt as this would mean that we won’t be able to borrow again.
So, in this article, we want to consider some of the solutions one can choose to get out of debt and avoid being bankrupt.
Here are 3 tips to help you get out of debt
1. Pay more than the required minimum
Credit cards have the minimum amounts that one needs to pay over a certain period. If you have borrowed, let’s say $1000 and you are required to repay at the minimum rate of $35, then this would take you 34 months to clear the debt. Assuming you are charged a 12% interest rate, then it means you would repay around $1, 184. If you were to reduce the repayment period to say 1 year, it means you would repay less in interest rates. This would for sure help you get out of debt in a much shorter time and prevent you from bankruptcy.
So, one may wonder how they will survive financially if they increase their required repayments. It is quite achievable. What one would need to do is review their spending. Where will one find the extra money required for the extra repayments? Well, you may need to cut down on your unnecessary spending.
You may also use any accruing bonuses to repay your loans in a shorter time. A pay rise would also mean that you can commit any extra income to your loan repayments. The first thing you should do is examine your spending and identify spots where you can cut spending. For instance, you may be paying for an internet connection that you rarely utilize. You may also be paying for a TV cable that you rarely watch. Look for areas where you could be splurging more money than is necessary. Cut on these areas and make the extra loan repayment to clear the debt in a shorter period.
2. Set up an emergency account
One of the reasons people are unable to repay debts promptly is that they use up all their income on regular expenses. As such, one has little left to cater for emergencies and loan repayments. One of the best ways to get out of debt is by setting up an emergency account where you make savings. You want to avoid credit cards and such related loans. When you set up an emergency account, you can use such money to cater to your emergencies and avoid unnecessary debt.
Set up an emergency bill and contribute to it every month. Make savings into the account until you have up to 6 months’ worth of expenses. In the same regard, work your expenses and keep them lower than 50 percent of your net pay. After the above planning, ensure that the money left after your expenses is used to repay debt. This will make it easy for you to meet your debt obligations and keep you out of bankruptcy.
3. Avoid unnecessary spending
You need to make it harder to spend. If you are always enticed into making impulse purchases, then you need to resist the urge. Avoid carrying your credit cards. You can as well hide them so that you are not able to make purchases using them. Ensure online sellers do not save your credit card details. This way, you have no way of making purchases.
Another thing is to know the amount of debt you owe and the cost of the debt. Make a list of your borrowings and their repayment obligations. What interest rates are charged to the debts? The idea here is to repay the loans that have higher interest rates before you repay those with lower rates. This way, you can easily repay all your loans and avoid bankruptcy.