Most of us will experience debt at least once in our lives. For some it may last for many years. At times it’s unavoidable when traversing the daily tightrope of our financial lives. So here is some useful advice to help you get out of debt and into the light of financial freedom that lies beyond.
Know how much you owe
Sounds simple but most of us don’t keep an accurate track of what we owe. Certified financial planner and founder of the Good Financial Cents blog, Jeff Rose says that when new clients come to see him, most of them have no idea how much they actually owe. As a result, they have no idea how long it will take them to actually get out of debt. It is important to accurately calculate how much debt you actually have, so that you can plan a strategy for tackling it. When attempting to get out of debt you should do the following:
- Make a list of your debts and choose one debt to pay off first.
- Eliminate unecessary expenses from your budget, so that the money can be used to boost credit card payments.
- Use a free service, such as ReadyForZero, to help you create a debt-payoff plan.
Don’t just pay the minimum
A guaranteed way to stay stuck in debt for longer than necessary is by making the minimum payments. It may stretch your budget, but by paying more you will save thousands of dollars in interest payments- money that could be better invested in building wealth rather than servicing debt.
Manage your mortgage
A mortgage can turn into an ever-growing weight upon our shoulders. What seemed like a dream home when we were debt-free, appears now as a nightmare once our debts start piling up. It may be a good idea to cut the chains and downsize to a less expensive home, rent or let one of your rooms.
If you are looking to refinance your mortgage, check out a Mortgage Professor refinance calculator.
Learn to say no to your children
If you’re serious in your efforts to get out of debt, then you must learn to say no. The author of “Life and Debt”, Leslie H. Tayne says many people end up in debt because they borrow in order to spoil their children with purchases they can’t afford. Tayne notes the case of a woman financially overburdening herself to pay $5000 a month to board a horse and pay for riding lessons for her daughter.
You need to sit down with your child early on and let them know what is and isn’t in your budget. For advice on this visit Janet Bodnar’s column, Saying No to Your Kids.
Save for emergencies
None of us know what is around the corner. It could be the loss of a job, a surprise home repair or a major health expense that in-expectantly hammers your finances. From those recently surveyed by Bankrate.com, only 38 percent had enough cash for that difficult day.
A general rule of thumb is to make sure that you have enough money tucked away to cover six months of expenses should that rainy day arrive.
Don’t feel entitled
A lot of us feel that we are entitled to things that perhaps stretch us a little too far. We treat ourselves to purchases as rewards for small achievements, because our friends have the same thing or just simply because we want it. We shove these purchases on credit cards and debt, when we simply don’t need them.
It’s okay to reward yourself from time to time, but you should only reward yourself for the reaching of a significant goal, such as giving up smoking or weight loss.
Avoid racking up late fees
A significant way to get out of debt is to steer clear of late payments. The penalties that are imposed may seem like small change on their own, but if you are consistently late with payments then several over a month can become a real problem. Some credit cards charge as much as $37. That means if you fail to pay a handful of those in a month then you’re easily receiving over $100 in new debt.
The best way to deal with this is to set up automatic payments so that each card is paid on time.
Make sure your interest rates aren’t too high
It’s simple: the higher your interest rates, the more it will cost you to pay off your debt. And that means the possibility of having to wait much longer to get out of debt.
If you have good credit you could look for a zero percent or low-rate balance transfer offer from card issuers. However, if you can’t pay off the debt during the promotional period, you’ll have to transfer the balance to yet another card.
A better option could be to consolidate your high-interest debt into a lower-rate personal loan.