Trying to get out of debt is a goal all too common for most Americans – but how do you do that exactly?
There have been countless written articles telling people how to get out and stay away from debt. Some even make debt out to be a virus you need to avoid at all costs. There will be pieces of advice warning you to be very careful in dealing with debt. All these warnings have some truth to them. But you need to know that debt is usually inevitable. And that there are good types of debt as well.
Some types of debt can help bring you closer to your goals in life. Student loans can give you the college and even post-graduate education you need to get a better start in life. According to XXX, college graduates tend to get a higher salary than high school graduates. A mortgage loan lets you buy the house for your family while slowly paying for it. It gives you a fixed asset, helps increase your net worth, and even contributes to a good credit score when you meet your payments.
This goes to show that debt is not all that bad. But there is one important element to that – you need to be consistent in paying it back. Otherwise, you lose all the benefits it can give you. And to make matters worse, you could get slapped with penalties, interest, and other fees on your payments. This is the reason why even as good as it is, you still need to get out of debt.
Information overload is a big possibility when you begin to look for ways to manage debt. You easily get 100 things to do if you want to ditch debt. Going through all of them could take some time. And the sad part, not all of them will work for your current situation. This is the reason why this article only lists 3 things you can do now to address your debt problems.
Stop using your credit card
There is a big chance that you are in debt at the moment because of your credit card use. It can be a result of trying to survive the pandemic, mixing up your card use, or simply not having a budget you can follow. Whatever the reason is, one thing that can help you get out of debt is to stop using your credit cards.
Of course, this will only be for a short amount of time. In this day and age, your credit card is a valuable financial tool to help you achieve your goals. But you need to be smart about it. And if the reason you are in debt is because of it, take a break from using your cards. Step back and analyze how to get to your current situation with your credit card use.
While at it, use cash in the meantime. This can help you understand and even appreciate the value of money more. When you are paying with money, you get to hold and feel it and in a way, sense its value. Taking a pause from card use also helps limit the chances of adding on new debt. You get to work on what your current level of debt is without worrying about additional debt coming in at the end of the month.
Get out of debt by paying more than the minimum
Yes, this is easier said than done. Although this is one of the quickest ways to pay down your debt next simply paying it in full. The simplicity of the approach makes sense to people who can actually make the payments. The argument most people throw in with this piece of advice is that if they simply had the money to pay, then they would not be in debt.
To make more than minimum payments and if your budget is already tight, explore looking for a side hustle. Look for a job you can do for a few hours a day without tiring you out of your day job. Remember that this is just a temporary fix to help you pay off your debts a lot faster than just making minimum payments.
If you can convert your hobby into an income-positive venture, then that would be great. You earn money all while putting time into a craft you already love doing. If you keep at it, it could be something you can invest in for a long time. It can even turn into a business you can focus on or a retirement income in the future.
Rework your household budget
If you want to get out of debt, your household budget needs to reflect that urgency. If you do not have a budget yet, then it is time to make one. Especially as CNBC shares that about 73% of Americans do not follow a budget. If you do have a budget then it is a great place to reflect on your desire to manage your debt situation. It is important to take a close and hard look at your budget to determine what you can move around to help you manage your debt.
One thing you can do is to divert some of your extra funds over to debt payment. If you have some extra funds at the end of the month, you can use part of that to pay more than the minimum on your statement. This can give you the breathing room you need in terms of payments. Consider taking up a frugal approach to your budget.
This is where you try and live below your means so you can save money at month’s end. It can be lowering your food budget by cooking more and going out less. You can save entertainment money by staying at home with family for movie or game nights as compared to going out and paying for expensive meals and movie tickets. You can be as creative as possible but take note that there is also a fine line between being frugal and being cheap.
Tips to stay away from debt
As you try and get out of debt, there are a few more things you can look into to help you achieve that. Take a quick look and see which ones apply to your current situation.
Prioritize needs over wants
It is important that you stick to your needs over your wants when it comes to spending. It can help if you perform a lifestyle audit. This can tell you if you can really sustain your current expenses. If not, then there is nothing wrong with cutting out a few of your unnecessary expenses. This can give you that extra boost you need to get out of debt.
Be wise with your credit card use
You do not have to stop using your credit card – you just have to be smart with it. You need consistency and discipline in using your cards. Try assigning a card to a specific expense which can give you the chance to maximize rewards and points. Also, it is ideal to pay your statement in full every month. At the very least, send in more than the minimum.
Strengthen your savings
You can also choose to channel your focus into strengthening and increasing your savings. It can be your emergency fund, college savings, or even your retirement fund. Rather than spending impulsively, try and divert your attention to growing your funds. This can help take your mind off your impulsive buying pattern.
Trying to get out of debt requires consistency and discipline on your part not only to get out but in staying out of debt as well.