A Comprehensive Guide to Get Out of Debt
In the modern materialistic world, it is very easy to get into debt. Be it credit cards, EMI options, or easy loans, everyone wants you to spend money first – even if it is borrowed – and think of your financial status later. If you have suddenly found yourself bogged down by debt you don’t know how to repay, you have come to the right place.
We are going to list the exact steps you must take to get out of debt.
1. Commit to Get Out of Debt
First and foremost you must commit yourself to repaying your debts. Making the commitment will bring in the discipline you need to get out of debt.
2. List Out All Your Debts
Make a list of ALL debts, be it big or small, old or new. When I say debts, I mean the amount, interest rates, frequency of payment, minimum amount payable, etc. Calculate the final figure of debt that you need to repay. It will be good if you use spreadsheets as it will make storing information and doing computations easier.
3. Figure Out Your Annual Income
Zero in on your annual income. Your actual, take home packet. Your on-paper salary is not going to help you in repaying your debt, what matters is the actual amount you have in hand.
4. Track Your Expenses
Start tracking your expenses diligently. You can record it daily in a notebook and also use online resources that aggregate your financial transactions.
5. Make a Budget
When you know what is coming and what is going, you need to start budgeting. Make a realistic estimate of necessary expenses like grocery, rent, commuting, school fees, etc. You get the drift, right. Always try to err on the higher side while estimating expenses. If you err on the lower side, you will feel the pinch if any item offshoots the allocation. An in real life scenario that is bound to happen.
6. Prioritize Your Expenses
Make a list of expenses that you will curtail and see how much you are saving. Go back to your spreadsheet and cross-check how much you need to repay your debts. Now to some suggested figures. Your necessary expenses should not be more than 50% of your take home packet. Assuming you are able to manage that, put aside 25% of your take home towards debt payment.
7. Create Debt Repayment Plan
Make a plan for debt repayment. Arrange the debts in descending order of interest payments. Pay minimum amount for all debts except the top most one. Pay maximum amount you can for the top most debt, which happens to have maximum interest. Keep striking off the debts you repay from top to bottom. This way you will end up paying minimum possible interest.
8. Adopt a New Lifestyle
Get into loan repayment lifestyle mode, where you need to spend minimum on yourself. If you want, you can share this with your family and friends, so that they understand why you are being frugal. Think of debt-free life to keep motivating yourself.
9. Earn More
Last but not the least, try to increase your income by doing some side gigs or negotiating a raise if possible. If you get cash gifts or have a windfall, put it aside towards debt repayment.
Like everything else, it’s all in the mind. If you are adamant on being debt free in a limited time frame, nothing can stop you from doing so. So go ahead – make a plan and follow it to it to lead a carefree debt free life.