The experience of being in debt can be challenging and overwhelming. Yes, borrowing helps you finance an education, a home, a car or even your business. If managed properly, borrowing can help you accomplish your financial goals. However, when mismanaged, debts not only affect your financial well-being but can also cause a lot of mental and physical stress.
Chances are if you are reading this article, you probably have some debt in your name. However, getting out of debts have a lot to do with changing your debt habits and digging your way out, one step at a time.
Here are five ways to unburden yourself from the weight of your debt:
- Know How Much You Owe:
It is important to make a list of your debts, including the creditor, total amount of the debt, monthly payment, interest rate, and due date. You can use your credit report to confirm the debts on your list. Having all the debts in front of you will allow you to see the bigger picture and stay aware of your complete debt picture.
- Make Plans for Repayment:
Not all debts are created equal. In making your plan, you’ll need to establish a hierarchy among your debts and make a plan of attack. Experts say to target the high-interest debt first; non-deductible, low-interest debt next; and tax-deductible debt last.
- Make The Costly Decisions:
Getting out of debt usually means making some painful decisions. If you’re simply too far behind, it might be time for some drastic measures. The softest cuts come in the form of substitution—one-ply for two, a walk in the park for a gym membership or a “staycation” over a vacation. Harder cuts however come in the form of selling whichever non-essential items you can live without. Any money raised from selling non-essential stuff should go toward a lump-sum payment against your highest interest loan.
- Find an additional source of income:
An excellent way of dealing with debts is to increase the money you have to pay off. This isn’t always a feasible option, but there are ways you can increase your income. Here are a few ideas to get the ball rolling:
- Get a part-time job
- Work more overtime
- Sell some of your things
- Rent out part of your house
- Set your sights on and work toward getting a promotion
When you start to make a little extra income, every extra dollar should go towards your debts. That includes unexpected income like gifts, tax returns, bonuses, prizes, or any other money that is available to you.
- Renegotiate the Terms:
Now it is time to meet with your creditors. Do your homework before you go and make sure you have all your documents in order. If you’re working with a credit counselor, plan out your approach in advance. Visit the lending institutions with which you have outstanding debts. If you owe more than one bank, start with the bank with which you have the best history. Set a meeting time and bring your damage report, your new cash-based budget, and a humble smile. Explain the steps you’ve already taken to avoid defaulting on your debts and ask to renegotiate the debt you have at that institution.
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