The Secret to Getting out of Debt

Introduction

Have you asked yourself, “Why do we have so much debt?”

There are several reasons why we have debts. The first reason is overspending. Sometimes we get too excited to get things we’ve aspired to have for a long time. However, we fail to consider that our earnings are not enough to support some things we want in life. Knowing your debt to earnings ratio is the key. In some instances, financing for a basic necessity such as education with the help of student loans is a different story. Education loans can be seen as an investment since education can be a tool for better earnings after attaining a degree.

Another reason why we have debts is because of unforeseen emergencies, unemployment included. Hospital bills coupled with unemployment is a heavy combination. Sometimes we don’t have much of a choice, it’s something we need to face head-on.

Getting ourselves out of debt is important in achieving ultimate financial independence. Spending less and saving more is the goal. Americans in general are debt-dependent and have more than $1 trillion worth of credit card obligations. Paying debts is commonly a major financial obstacle for so many people. That is why we need to be wise with our money and our spending habits.

The Secret: Manage your finances

• Change your spending habits

While we all want to rise from a burdening debt pile, what most people fail to consider is a revamp on their spending habits. Remember, retaining old spending habits means not being able to lower your upkeep. If you want to pay yourself out of debt, it means re-allocating some expenses for payment obligations. Set aside one day and compute how much you are actually spending in contrast to what you’re able to make. Which are the essentials, and which are the non-essentials? Cut down on those that you do not need and stay within your means.

• Prioritize your debts

Debts can be overwhelming. Write down what needs to be paid, when it should be paid, and which of those are urgent. What consists of your debts? Rent? Mortgage? Credit Cards? When accumulating multiple debts, some people tend to pay off an equally large sum of money for each payment. A wiser approach is to see which debt has a higher interest. Not all debts are computed equally. Letting debts with the highest interest grow will only take you a much longer time to finally close it off. One by one, eliminate those with high interests. 

• Pay more than minimum

Banks indeed help us manage our debts through minimum payments. However, it would be even wiser to pay more than the minimum. Of course paying the minimum balance develops a good credit standing, but it also allows interest to accrue. If you’re able to allocate more than the minimum, try the avalanche approach and write off that debt faster. The avalanche approach is where you prioritize debts with higher interests. Aggressively pay them more until you’re able to close it off completely.

• Get an extra stream of income

If you suddenly find yourself struggling to pay off those debts, getting an extra stream of income is the next best thing. Not only will it enable you to pay your creditors, you might have some extra amount to save for yourself too. Part-time jobs are ideally the way to go. The best part time jobs are those that enable you to generate more cash inflow while utilizing untapped skills or a passion tucked away for the longest time. More importantly, part-time jobs when done right, can be sustainable enough to earn you more than your primary job.

• Sell what you don't need

If you find yourself biting more than what you can chew, take some out. While there are things that we find sentimental, there are those that we can afford to be gone. Do you really need two television sets? Are you using that treadmill or do you have that unused gym membership? Changing your spending habits also mean rethinking your kind of lifestyle so you can live within what you can afford. Remove those temptations and start a new discipline. Hold a garage sale and use the money earned to pay off your obligations.

Conclusion

Living a debt-free lifestyle is the ultimate dream, and for such good reasons. For starters, going debt-free gives you a sense of security. Paying off your house means you’d have a roof over your head forever. You don’t have to worry about banks running after you and taking your house. Being debt-free also means you have more freedom to do whatever you want with your money. Invest, play golf, eat out, be wherever or whatever you want to be. It also relieves you from headaches and other forms of anxiety or depression. Get yourself out of that debt-hole and set your foot out without thinking that you owe anybody something. In turn, it also gives you the chance to finally build your savings may it be for your retirement or for an emergency. Having something saved makes you more liquid which means you’d always have something to use when the need arises.