When you manage debt properly, it helps you get things done and improves your life. But if the debt isn’t managed properly, it can become an obstacle that hinders your progress instead of moving you forward. If you’d like to know how to fix debt, we’ve got the lowdown.
Here is a list of the many different ways to help you manage your debt well, pay it off quicker, or free yourself from debt altogether.
Knowing what you owe is the first step to overcoming your debt. Don’t live in denial as your debt keeps mounting.
Whether you’re stuffing your bills and statements into a drawer and are in complete denial, or you’re actually doing something to deal with debt, you can always get an up-to-date, more detailed understanding of what and who you owe today.
Write down all of your debts. Next to every debt, write how much you owe, how much interest you’re paying, as well as the minimum month-to-month payment.
How much interest are you paying each month? With this information, you’ll be able to come up with a plan of managing the debt. It might also be the incentive you need to begin finding effective ways to reduce the debt.
Once you’ve worked out the amount you owe, it’s wise to prioritise debts based on importance.
Determine what debt needs addressing first based on the interest rate, any possible defaults or lawsuit threatened, etc. Where possible, you should first prioritise debts that’ll hurt you the most. This is one of the best ways to develop healthy personal finance habits.
There are a few different ways and strategies for paying off debt. Some people believe you should pay off debt beginning with the smallest balance to the largest, gaining momentum while you clear each balance. This is called the debt snowball method. Another method is to start dealing with the debt that has the highest interest rate. This will help reduce your payment in the long-term — which could speed up your progress. However, it can be more difficult to pull this off if you’re starting with an overwhelmingly high-interest balance. Whatever method you pick, set your short-term goals so you can keep on seeing progress and not lose momentum.
Paying your bills late makes it harder to repay your debt as you’ll have to pay a fine for each missed payment. If you miss back-to-back payments, your finance charges and interest rate will increase.
You can avoid that by installing a calendar app on your smartphone or computer, which will send an alert several days before your due date to remind you of your payments. If you miss one payment, don’t wait to send it on the next due date. By then, it might be reported to the credit bureau. Instead, make your payment as soon as you
Living below or within your means will help you avoid bad debts. A detailed budget will help you stay on track. Just like dieters who keep track of what they consume tend to shed more pounds than those who don’t, persons who monitor their spending find it easier to stick to a budget.
Prioritise saving. One way to achieve this is by creating an automatic direct deposit scheme through your investment company or bank. Making sure the money never gets into your wallet will reduce the temptation to spend. You should also set up a safety net fund—at least 6-12-month expenses in one account you can easily access in case of an emergency.
A budget will help you monitor expenses and direct more cash to paying off bills or saving. Forgo eating out and eat a packed lunch instead. Order regular coffee instead of mocha latte supreme. Keep your current car instead of swapping it for the latest arrival—and with it, a new set of payments.
Like reducing your bills, cutting your spending may also help you pay off your debts faster. The best method to reduce your spending is to keep to a budget each month.
Determine what you can slash. Review your credit card buys and bank statements to find out what you have been spending each month.
First determine if each item was a need or a want, with a view to doing away with some of the wants completely in the future. You can do without professional manicures, magazine subscriptions, and luxuries like clothing, accessories, eating at restaurants, and electronics for example. Once you’ve figured out the things to cut out altogether, you can divert that cash toward debt repayment in the coming months.
Next, you need to cut the cost of your needs. Find a less expensive way to buy what you need or cut back on the need. Of course, you need food but you can cut your food budget.
Skip restaurants and fast foods and eat home-cooked food more often instead. Buy what’s in season and on sale, sign up for loyalty cards at grocery stores, and collect coupons for the things you’d purchase anyway. Find recipes that need cheaper ingredients than what you’re used to. Make your own coffee and take it to work, instead of spending a few bucks on a cup at work every morning.
With each and every need, like food, take your time to research online or brainstorm ideas on how you can spend less on it.
Another area to reduce spending on is transportation. Work out your routes and errands more efficiently to cut your fuel consumption. Carpool whenever possible (but remember to take parking into account), or opt for public transportation if it’s cheaper and available. Ride your bike and walk whenever possible.
Reducing your spending is necessary for decreasing your debt, but combining it with increased income is even better. Do so and you’ll find yourself out of debt sooner.
While getting a well-paid job is a certain way to raise your income, it isn’t something you can actually achieve this minute. But you can strategise on how to get there. Brush up your resume, update your LinkedIn profile, and begin looking for a job. Consider acquiring a certification or new skill to improve your employment prospects.
If possible, ask for a salary review at your current job. Can you ask for overtime at your current job? Offer to take extra work for a higher salary.
Go freelance. Do you have a skill you can turn into a decent side job? If so, that can help you put aside cash toward your debt. Begin by figuring out your most marketable traits and skills. There are freelance opportunities for writers, graphic designers, makeup artists, interior designers, accountants, editors, and many other jobs. You can sign up on an online freelance platform, such as Upwork.com, and find contract jobs there. You can also find these jobs on other job boards, including Craigslist, and on industry sites.
Apply for part-time work. Working both full-time and part-time can difficult, but it’s a great step toward getting out of debt. To make it easier for yourself, start searching for part-time jobs that are near your regular job or home so your commute is easier. Better still, pick part-time work you can actually enjoy, or one with employee discount on things you usually buy anyway.
Take on side jobs or “gigs”. Unlike part-time work, these aren’t as concrete and are more flexible. If you know how to fix household items, why not find people who need help? There’s always someone out there who needs your services. Other possibilities include walking dogs, tutoring, babysitting, cleaning, personal shopping, and running errands.
Make extra cash in your spare time or with your hobby. You can sell your crafts at craft shows or on Etsy.com, or if you love collectables and vintage deals, pick up inexpensive yard sale things and sell them on Craigslist or eBay.
For more information, read 10 legitimate ways to make money.
Selling items you no longer need can create more space in your garage or home while earning you cash you can pay off your debt with. Take stock of your junk and see what can bring in money.
The most difficult part is finding buyers. A great way to connect with buyers is through a free app like Declutter. There, you can sell your gently used CDs, DVDs, textbooks, gadgets, and games.
One very frustrating aspect of debt is that it continues to grow due to interest, even if you've stopped spending altogether.
Contact your credit card firm and ask for a reduced interest rate. It might not happen, particularly if your credit score is damaged due to high balances or late payments, but it’s certainly worth a try.
Another way is to transfer part of your debt with high interest to a low-interest card, ideally a promotional 0% interest rate or low fixed rate. One problem with this method is that opening a new credit card and the resulting credit enquiry will lower your credit score temporarily, and if you’ve not paid back the transferred amount by the close of the promotion period, you’ll be back to square one with a hefty interest rate. You have to weigh this decision against your current personal circumstances. Does the pay-off outweigh the drawback?
If you’ve got credit card debt, it’s possible to get out of it. Find the highest interest rate card and pay back as much as possible over the minimum payment every month while paying minimum amounts on other cards. When you’ve paid off your first card, direct those payments to the second-costliest card until all cards are paid off.
When you can, consolidate your credit cards under the best interest rate on offer and pay back as much as you can toward your monthly amount. You can also use a credit card as long as you can repay the balance each month. You'll enjoy the convenience of a card but avoid interest on items like food, groceries, travel, and entertainment.
If you’re neck-deep in debt, you can go for debt counselling. Reputable organisations can help you consolidate your debt into a monthly payment and talk to your creditors about giving you lower minimum payments or interest rates.
Most people find some kind of “found cash” throughout the year. Perhaps you get an inheritance, bonus, or raise at work. Or perhaps you get a huge tax refund each spring. Whatever kind of “found money” you get, it might greatly contribute to getting you out of debt.
Each time you have unexpected sources of income, use that money to repay a huge portion of your debt. If you opt for the snowball method, use the cash to pay off your smallest debt, going all the way up to your largest debt. And if you’ve only got huge balances, you can pay off a huge chunk of your debt.
Once you find that your debts are out of control, have a chat with your creditors. Tell them the true picture of your financial situation as they’re the most reliable people to help with debt management. They’ll be able to give you the support and advice you need to get your debt under control and pay what you can afford.
Letting lenders like Creditspring know about your situation immediately can keep them from taking legal action or getting debt collectors involved. Please make sure that anything you agree upon with creditors is written down and sent to you.
No matter what debt you’re in, the good news is that you can get out of it. It might not happen overnight, but if you have a plan and keep to it long enough, a debt-free future might be yours.
Regardless of your plan to get out of debt, any of the above methods can help you become debt-free sooner. And the quicker you get out of debt, the faster you can begin living the life you’ve always wanted.