It doesnât 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 the debt prison 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 for your assault on debt, we need to figure out how you managed to get yourself into this financial pickle. Unless we take that X out of the equation, youâre bound to be getting the same result. Apart from the unforeseeable Acts of God, there are usually 2 major reasons why people go into debt:
Reason #1: Youâre 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 youâre forced to choose between paying the electricity bill and buying seasonally-appropriate footwear, itâs time to start looking for additional sources of income.
Reason #2: Youâre a careless spender. Now, itâs a different story when youâre making quite enough, but still, itâs never...enough for you. 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 walk? Make a habit out of taking down your daily expenses and youâll patch up the black hole that devours your money in no-time.
Now that weâve tackled the reason for your debt, letâs launch a full-blown attack on it.
Prioritize and analyze
If you have more than one debt weighing you down, itâs time to prioritize them. It may surprise you, but size doesnât matter in this instance. Neither do the loan sharkâs threats (although we hope it doesnât get to that). What matters is the interest rate.
Try prioritizing 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 feeling capable of kicking some small-debt butt boosts your confidence â more power to ya!
Paying off multiple debts
Suppose you have 2 credit cards that need to be paid off. Trying to cover that debt by making the minimum required 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 youâre paying the interest
Instead, try the method described by Robert Kiyosaki in his bestselling book «Rich Dad, Poor Dad». Hereâs how it works: you work out an amount youâd be comfortable paying each month in addition to the minimum payments and dedicate that amount to one of the credit cards. As soon as the outstanding balance is covered, you move on to the next card. Only this time youâd be depositing that extra bit plus the minimum payment you used to pay on the first card. Your monthly expenses remain absolutely the same, while «the birds» are getting into your cage one by one.
Make debt your top priority
Letâs face it: you canât pay off debt if youâre 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 isnât it a relief to feel like the responsibilities have been taken care of and youâre done for the rest of the month?
Tap into your hidden resources
Are you sure youâve exhausted every financial resource at your disposal? Well, how about those tax returns? And isnât 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.
Donât reach for a trump card
Donât trust the Big Name Banks when they tell you can get rid of one credit card debt with another card. Be wiser. If youâve exhausted all other options, consider a bank installment loan: the interest rates on those are usually lower than the ones offered for credit cards. In any case, do your homework and double-check the terms (including the fine print).
And the last bit of advice. Donât think of your debt as a curse and an unbearable burden that doesnât let you live your life to the fullest. It is but a price you pay for the priceless lesson in managing your personal finances in a more efficient way. And who knows, maybe once youâre free from debt, youâll even be able to afford more than you could before. Only this time, interest-free.