It doesn’t matter how you got here: be it by taking out a few loans or juggling several credit cards. All that matters is that you absolutely can get out of debt on your own. Well, unless you count the help this article has to offer ;)
Figure out how you got here in the first place
Before we start planning your assault on debt, we need to figure out how you got yourself into this financial pickle. If we don’t take that X out of the equation, you’re bound to be getting the same result over and over again.
Apart from the unforeseeable Acts of God, there are usually 2 major reasons why people go into debt:
Reason #1: You’re not making enough money. Clearly, no one in the right mind would object to getting paid more. However, if your situation is so dire that you’re forced to choose between paying the electricity bill and buying seasonally-appropriate footwear, it’s time to start looking for additional sources of income.
Reason #2: You’re a careless spender. Be honest: do you have a soft spot for a certain coffee-brewing Mermaid? Do you call Uber to go to a park for a run? Make taking down your expenses a daily habit and you’ll patch up the black hole that devours your money in no-time.
Now that we’ve tackled the reason for your debt, let’s launch a full-blown attack on it.
Prioritize and analyze
If you have more than one debt, it’s time to rank them. It may surprise you, but size doesn’t matter in this instance. Neither do the loan shark’s threats (we sure hope it hasn’t gotten to that). What matters is the interest rate.
Prioritize the loans with the highest interest rate, because those can and will lead to significant overpay in the long run. However, the opposite approach is not without merit either. If kicking some small-debt butt boosts your confidence — more power to ya! It’s a good source of motivation.
Paying off multiple debts
Suppose you have 2 credit cards that need to be paid off. Trying to cover that debt by making minimum monthly payments is like chasing after 2 birds with NO stone in your hand.
Those monthly payments were designed to drain you of your money by prolonging the time you’re paying the interest
Instead, try the method described by Robert Kiyosaki in his bestselling book «Rich Dad, Poor Dad». Here’s how it works: you work out an amount you’re comfortable paying each month in addition to the minimum payments and allocate it to one of the credit cards.
As soon as the outstanding balance is covered, you move on to the next card. Only this time you’ll be depositing that extra bit plus the minimum payment you used to pay on the first card. Your monthly expenses remain the same, while «the birds» are getting into your cage one by one.
Make debt your top priority
Let’s face it: you can’t pay off debt if you’re only using the money leftover at the end of the month. You need to make debt your number one expense as soon as you get your paycheck. Yes, it does hurt. And yes, these restrictions can cramp your style. But isn’t it a relief to feel like the responsibilities have been taken care of and you’re done for the rest of the month?
Tap into your hidden resources
Are you sure you’ve exhausted every financial resource at your disposal? Well, how about those tax returns? And isn’t it time to put that kitchen blender you never use on Craigslist? Even if it seems like each of those sources of revenue are but drops in the ocean, together they can form quite a stream.
Don’t count on a trump card
Don’t trust the Big Name Banks when they tell you can get rid of one credit card debt with another card. Be wiser. Consider a bank installment loan: the interest rates on those are usually lower than the ones for credit cards. In any case, do your homework and double-check the terms (yes, including the fine print).
And the last bit of advice. Don’t think of your debt as a curse or a terrible burden that doesn’t let you live your life to the fullest. It is but a price you pay for the priceless lesson in managing your personal finances more efficiently. And who knows, maybe once you get out of debt, you’ll even be able to afford more than you previously could. Only this time, interest-free.