There is good debt — such as borrowing money to buy a home, enhance your career skills, or pay for your children’s education – and there is bad debt, such as using credit cards and not paying balances in full every month.
Erasing the bad debt is important in helping you manage your finances and reach your financial goals. Below are seven tips to help you get out of debt.
- Know what you owe. Knowing your monthly income and expenses is essential to improving your financial situation. This is because it is difficult to improve unless you know where you are. If you are serious about getting out of debt, take the time to list all your outstanding debts and include how much you owe, your monthly payment, and the interest rate. Once you do this you will know what you owe, and you can begin to tackle your debts.
- Check your debt limit. If you are concerned that you may have more debt than you can handle, check to see if your debt is within safe limits. There are several ways to see if your monthly credit payments are taking too much of your income such as the debt-to-income ratio.
- Pay off your smallest loan first. Financial experts say to pay off your smallest debt first. This will give you a sense of accomplishment and success as you tackle the next smallest debt. Additionally, you should use the money that you played off the first debt to now help you pay the second debt. You continue this snowball effect with all your debts
- Increase your monthly net income. You can do this in two ways: earn more income or reduce your monthly expenses. Some suggest you do both. A part-time job or maybe you have a hobby that could be developed to produce additional income. As far as reducing income is concerned, you will be surprised how much you can reduce your expenses by living more frugally and using a spending plan. Taking your lunch to work and cutting back on cable and cell phone service could help you find an extra $500 a month to help reduce your debt.
- Stop using credit cards and pay cash. Give them to a friend for safekeeping, freeze them in a block of ice, or put them in a safe deposit box, but do not use them. By paying cash for things instead of using credit, you could save thousands of dollars in interest and help you become debt-free.
- Call the credit card companies and ask to renegotiate the interest rate, or inquire about special payment programs where fees such as interest and late payments may be suspended for a certain amount of time.
- Start today. When it comes to getting out of debt, start sacrificing today. Lots of people talk about getting out of debt, but they fail to act. Do not follow their example and start today. Once you get started, you will begin to see how you are changing your family’s future.
These tips can help you get out of debt. Be consistent and persistent because you did not get into debt overnight. It may take some time to get out of debt. Contact me here if I can help you get out of debt.