Debt accumulation is common among many people, and for the most part, it is unintentional.
This is in fact the reason why many people are unable to attain financial freedom.
Debts affect personal finances immensely and until you deal with them for good, you will have a problem managing your personal finances.
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Debt results in a low credit score which will affect many areas of your life. The only way out is to come up with a plan to pay off the debts.
If possible, get professional help and pay off all your debts, then you can start your money management journey.
This sounds simple, but the problem is that for the most part, you do not want to think about your debt, and you may have an unrealistic idea of how bad the situation really is.
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You have to come clean about how much debt you have.Come up with a list of the amount of money that you owe to other people, institutions and banks as well.
Then, look at your income.When planning to deal with debt, there is one thing that you will need to let goof, and that is disposable income.
Disposable income is what’s left over once you have paid off all your bills and put aside some money for your savings.
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This would be your spending money. All your spending money will go towards paying off your debts, which means that you will have no luxuries or entertainment for the period that you are paying back your debt.
If may take some time, but hang in there and you will be thrilled at the results.
Once you are debt free, you can start to save up your disposable income so that you can do things that you enjoy.
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Become Aware of All Your Debts Debt can debilitate you in your quest to achieve financial security. Debt usually comes with interest rates.If you ignore your financial commitments, the interest will pile up.
In the worst cases, the monthly payment required by the lender may become difficult to manage.We do not want this to happen. If you still have a lot of debt, all the gains from your investing efforts may only go to debt payments.
Ideally, you should use the majority of your savings to your debt payment first.You should aim to wipe out your debt first before you start investing.
Especially if you have a goal to achieve, such as “financial freedom” debt could become the biggest hurdle in the way. Below they are some of the steps you can follow to become debt free.
Don’t Take on More DebtSetting up an emergency fund is a necessity.Before you pay off the debts you have, make some effort to save for your emergency funds.
It is recommended to have a month’s worth of expenses saved in preferably a high-interest savings account. You should focus on paying off your debt and building your emergency fund simultaneously.
Want to Make a Big Purchase? Save for it!Want to Make a Big Purchase? Save for it! Don’t make the mistake of using emergency funds for huge expenses like cars,monthly insurances, or education fees.
Be compassionate towards yourself and value your life above anything else. Don’t stress over small decisions.
Financial problems and challenges cause mental stress which impacts overall mental health. It is important to deal with such issues using your own willpower. Being debt free opens up so many possibilities and choices for you.
Decrease Your Interest Rates
You can try to reduce the interest rates on your loans. You should try to refinance your mortgage and home. If possible, you should also try to refinance your car loan and, even personal loans. If you have a credit card it is recommendable to use the 0% balance transfer credit cards to decrease your interest rates.
It will significantly lower not only your interest payments but also shorten the time required to get out of credit card debt.Adopt an Aggressive Attitude while Paying off DebtDon’t allow yourself to set an unrealistic timeline to pay off your debts.
However, you must maintain an actionable plan. Make sure to maintain a balance between what you have and what you can deduct from it to pay your debts.
Never put every small amount of cash towards paying off debt. You should also lookout for ways on how you can set aside money for emergency and retirement accounts.
Overall, taking a balanced approach in terms of finances could lead to a very solid wealth foundation for you and your family.
Extra Cash You should always look to create a passive income that could help tremendously terms of extra money.
Passive income could go into savings and would help you pay off debts while you can live easily on your regular income. There are other techniques as well that you can try to earn some extra cash on the side.
Monthly bonuses, employee recognition funds,etc. can come in handy as well.