Climbing out of a substantial debt can seem impossible at times, particularly with the cost of maintaining your everyday life. Many fear being trapped forever in an endless cycle of minimum payments and compounding interest, but restoring your good financial standing is certainly an achievable goal.
By establishing the facts of your situation and devising a sustainable plan that allows you to settle your debts while living your life, you can move back toward a debt-free life and the feeling of freedom that comes with it.
Know What You Owe:
Most of the major issues with loans and debt stem not from the amount initially borrowed, but from interest, fees and other hidden charges. These charges can pile atop the principal of a debt, in turn creating more interest and creating a vicious cycle of negative finances.
This makes understanding the exact structure of your debt critical to establishing a long term solution. Contact each creditor that you are indebted to and create a full list of every outstanding bill and debt, then order a copy of your credit report to create a complete picture of your current financial standing.
Find The Cost of Living:
It’s impossible to know how much of your income you can dedicate to paying down your debt if you have no idea of your basic living expenses. Keep a running journal of your expenses by documenting every penny that you spend in a notebook, categorizing each purchase as a type of expense (petrol and vehicle maintenance under “Travel,” groceries under “Home” and so forth).
You should also create a comprehensive monthly budget detailing your expenditures in a given month to give you a better understanding of the amount of money you need to keep your life running while you work to satisfy your debts. While listing your monthly expenses, be sure to identify any unnecessary spending that can potentially be cut out to give you more resources for paying your creditors.
Determine Your Limit:
Effectively paying down debt requires committing as many resources as your finances will possibly allow, and so once you have calculated a budget for your absolute necessities, it is a good idea to dedicate a significant portion of your income to repaying your debt.
Be sure to leave yourself at least a 5 percent cushion between your basic expenses and debt repayment funds each month to account for incidentals and unexpected expenses to avoid dipping into your repayment funds on a regular basis.
Pay Expensive Debts First:
Sometimes it’s not how much you pay, it’s who you pay that determines how quickly you can work your way out of debt. Higher interest rate loans like personal loans and credit card loans can quickly spiral out of control if left unattended, so be sure to target the creditors with the highest interest rates for repayment first and work your way toward the less volatile debts over time.
Don’t Give Up:
The process of repaying a debt can seem endless, and it is admittedly frustrating to watch large chunks of your income seemingly disappear down a bottomless pit, but it’s extremely important to stick to your plan once it is established.
Shortfalls can happen, and you may occasionally have to divert repayment funds to more immediate needs, but keep in mind that doing this with any regularity effectively undoes all the hard work and sacrifice you’ve endured in paying down the debt and may even create new debt that can make a situation truly hopeless.
If you need help managing your finances or talking with debt collectors to find preferable repayment arrangements, it can be a good idea to speak with an attorney or financial expert about your options.
However, one thing that should be avoided at all costs is borrowing more money to support debt payments, including through a debt consolidation service, as this frequently compound the issue. Whatever you do to work toward a more stable financial future, the best action you can take is not to ignore the problem.