In paying off debt, one of the best advice from financial experts is to start from the smallest to largest, though some disagree with this method. Whichever advice you choose, it will still be smart if we considered why some of the options below.
1. Decide To Stop Borrowing Money
The first step towards getting out of debt is making a decision. This means no more financing furniture, no more signing up for credit cards, no more test driving brand new cars that you don’t have the cash to pay for. This will help you focus solely on the debt that you currently do have so that you can develop a game plan to pay it off quickly.
2. Create a Realistic Budget and Stick To It
Develop a budget as it will help you track how much money you, and how much you are spending. Doing this is very important to staying out of debt. Not only will it help you stay out of debt, it will also help you trim whatever debt you currently have and reach your desired goal.
It will also show whether you have any money left, called a surplus, or if you are in the negative, called a deficit. The goal is to increase your surplus and use that money to pay down your debt. One way to trim your expenses. Go over each line item on your budget and ask yourself, “how can I make this number smaller?”
It may involve cancelling some things, or reducing your expenses. Further, the amount that you cut depends upon how committed you are to getting out of debt. The more committed you are, the easier it will be for you to give up some of the unnecessary things in life.
3. Organise Your Debt
This is a very important step in reducing your debt. There are two approaches that are worth considering.
The first is where you list your debts smallest to largest regardless of the interest rate. It is advisable to start reducing your debt by starting with the lowest, and whatever is left of the money can then be thrown at the bigger debts as you gradually work your way up.
The reason this works is that it gives you a real sense of accomplishment and confidence that you can finish off the remaining debt. Even though you have debts with higher interest rates, it will make you very powerful, with the belief that you can get out of debt quickly if you stick to the plan.
The other method is where you list your debts, starting with those with the highest interest rate and ending with the debt with the lowest interest rate. This method makes the most mathematical sense, because you will save the most money in interest over time. Regardless of which process you choose, the key is to stick with it.
4. Always Use Any Extra Money To Clear Your Debt
When getting out of debt, whatever extra money you get should be used to tackle that debt. The more cash you can put towards your debt, the faster it will disappear.
Debt doesn’t have to be forever. After all, personal finance is 80 percent behaviour and only 20 percent knowledge. Like everything else, it’s all in your head.
