Tips For Getting and Staying Out of Debt

Tips For Getting and Staying Out of Debt

Nobody ever says to themselves that this year the goal is to get into serious debt. Yet people keep finding themselves in debt, sometimes to an overwhelming degree, year after year. Unfortunately, debt can be a real trick to your mind because in some cases, you are racking it up a little bit here, and a little bit there. As well as your mind has tricked you into thinking that since the individual amounts are small, so is the total owed across the board. 

In other cases, when people amass significant amounts of debt, they allow their brains to tell them that they are so deep into the hole that they won’t be able to climb out anyways. So, it doesn’t matter if they continue to add to the pile, which is scary. If either of these scenarios sound familiar, or you are simply genuinely curious about heaving a healthy relationship with debt, ask yourself, how does this happen, and how can you avoid it?

Low-Interest Loans and High-Interest Debt

Credit card debt is often the most challenging for people to deal with because the interest rates are so high. If you only make the minimum payments each month, it will take a long time to whittle down the bill entirely, and you’ll lose a huge amount to interest in the meantime. You might want to look into taking out a lower-interest loan that you can use to pay it off. If you own your home, you can review a guide on taking out a home equity loan. This may offer you a more favorable interest rate.

Have a Budget

Having a budget can be an excellent way to make sure that you don’t end up owing money. You’ll know exactly how much you have going out and coming in and what you can spend. It doesn’t mean you can’t splurge on that great vacation or that outfit you’ve got your eye on, but it does mean you’ll have to figure out how to balance those expenditures. The early stages of creating and sticking to a budget can feel tedious, but with the help of apps, it will quickly become second nature.

One of the best kept secrets about budgeting is that you are also likely to get excited about the growth of your savings. If you give yourself a few months of dedicated budgeting, undoubtedly your savings will reflect that. Once you start to see that balance grow over time, you probably will feel like you would rather keep that going, than spend an extra $50 mindlessly each week. 

Have Emergency Savings

When an expense you didn’t budget for comes along and you have no choice but to pay it, you could end up in debt despite sticking to your spending plan. This is why you also need to have an emergency fund. How much should be in it will vary depending on your situation. The usual suggested amount is between three and six months’ worth of expenses, but if you are self-employed, you might want to put away more. This will help ensure that illness, job loss, unexpected home or car repairs, and other unanticipated costs won’t destabilize you too much.

Have a Plan

The same as there are things to know before starting a health journey, or changing careers, you need to have a plan for dealing with any money that you owe. Getting lower interest rates, if possible, is a good start, but you then need to work on aggressively paying it down as well. This can feel overwhelming if you have multiple debts, but there are two suggested ways of organizing them to make this process easier. 

Essentially, you need to decide whether you want to pay off the smallest one first for the psychological satisfaction that will bring or if you want to pay off the one that is costing you the most in interest first. For every other debt, you should only make minimum payments. Once you have paid off that first debt, you will then roll the total amount you were paying on it onto the minimum payment for the next debt in line. As you can see, with this method, the amount you are paying on each individual debt increases as it comes up in line, and over time, you will have everything taken care of.