8 Things that will Help you Get Out of Debt

get out of debt guide
8 Things that will Help you Get Out of Debt & Become Debt-free

Most of us dream of living a debt-free life, and even though we know how very important it is to live without debt, very few of us do actually achieve it.

So why can’t the majority of people get it right?

Because we as people sometimes struggle to manage our money the right way. Mainly due to the fact that it is so easy to use credit to buy things. We forget to think of the future, and also of the consequences that all the debt will eventually have on our financial status.

In our lives today it can sometimes be a struggle to keep up with daily expenses and our debt payments every month.

And sometimes it might even happen so, that under circumstances you only have one source of income to cover everything, which can make things very difficult and you need proper planning – so that is why we are going to have a look at 8 very important things that you can do to try and get out of debt, regardless of whether you are living on one or two incomes.

#1) Understand the meaning of debt

By understanding the meaning of debt, it will be easier to get rid of it and avoid it in the future.

If you are living a debt-free life, you are one of the few lucky people, but the truth is that somewhere in our lifetime, most of us would have to deal with loans which is the result of an emergency or unexpected financial requirements.

The definition of a loan can be described as An amount of money that is borrowed by a person (usually called the debtor) from another person or organization (the creditor).

Another way to look at it is the amount of money owed to an organization (or in some cases, an individual).

Normally when you get finance, there are various terms and conditions that you must agree upon.

These usually include things like:

  • The time period you have to repay the money.
  • The interest rate that will be charged and,
  • the amount that is payable, usually at the same time every month.

Why would you get finance just to end up in debt?

The answer is very simple, and a good example of understanding debt is through cash loans.

Let’s say you get a loan to renovate that outdated bathroom that has been a sore eye since you bought the house – this might seem like a brilliant idea now, but one thing you must remember is, that you are going to be paying interest on the loan, which means that in the end, you are going to be paying back much more than you actually borrowed. This might make you think twice.

Is the debt really worth it?

You should always think of the future and the consequences of your money spending ways.

It is very important that you understand the different types of debt.

Debt can be from secured or unsecured loans

Secured loans

Secured debt can include a car loan and even a home loan/home mortgage. When you take out a secure loan, you usually use your car or home in this case as collateral.

This means that if you fail to make the payments, the lender can claim your vehicle or house as payment.

Unsecured loans

An unsecured loan is the much safer one since there is no collateral involved.

Examples of unsecured loans are credit cards, personal loans, telephone bills etc…

If you are in a difficult financial situation where you are struggling with debt, it might be time to look for strategies on how to manage and get rid of debt, and if it is really bad there are experts that could help you. 

The number one rule to remember when it comes to spending is – if you don’t need it, do not buy it.

It's too easy to spend money

When you want something and that is the biggest problem, especially if you have multiple accounts, because if you keep on spending it will eventually happen so, that not even your monthly income will be enough to cover all your debt, and that will lead to you not making your payments on time and the end result is you ending up with a bad credit record.

#2) Create a budget

A budget is a plan that you create so that you can manage your finances and keep track of all your income and expenses.

Normally a person would make a budget at the beginning of a month or even when you get paid.

A budget consists of your income and your expenses.

If you take into account all your monthly expenses and you subtract them from the total income, you will have a very good idea of whether you will have enough money or if you should start cutting back on a few things.

How to start creating a budget for myself? 

Creating a budget is easy, all you need to get started is a pen and paper, a computer that has a spreadsheet available or even in today’s modern times you can easily and fast make use of an app on your smartphone. But if you want to manage your money smartly, you will have to create a great and sensible budget that works for you.

Following is a few tips on how you can create a great budget.

Step 1) Record your spendings

This is a very important step if you want to start a budget.

Many of us spend money daily without really noticing exactly how much we are giving out. It will be a good start if you begin to record every purchase, whether it is big or small, daily purchases, ATM fees etc.

Step 2) Know your expenses (priorities vs spending)

The things we want are not always what we need.

Paying bills, buying groceries, servicing your only vehicle – these can be described as priorities. But on the other side going to the movies, eating out at fancy restaurants or buying designer clothes - is pure spending.

By creating a budget, you will know if you have enough money for both or if you need to cut back on some new clothes that you don’t really need.

Step 3) Pay with cash

This is something we all know we should do, but it can be difficult especially if it is so much faster and easier to just swipe your credit card when making a purchase. But the truth is this is something you should do if you are serious about creating a budget and managing your money effectively.

By following these tips, you will be able to start a budget but more important is that you should stick to it.

#3) Set up a schedule for repayments

You have scheduled bills and expenses that need to be paid, usually at month’s end.

This almost goes hand in hand with setting up your budget.

It is very important that you know on which date (usually the end of the month or the date you and your creditor agreed upon) you need to make the payments.

By having your budget, you will know whether you will have the specific amount of cash available that is needed for the repayment.

When it comes to making repayments on credit cards, loans etc… it is of great importance that you try and pay at least the minimum amount required.

This will help you to stay out of debt!

If you are setting up your budget and see that you are not going to be able to make the necessary repayments, it’s time for you to look at your budget again and however difficult it might be, you need to cut back on some of your expenses (those that are not classified as priorities) like the entertainment amount you set aside for yourself.

To make sure that payment does happen on a scheduled time, some people prefer to make use of debit orders.

So what exactly is a debit order?

A debit order can be seen as an agreement between you and a company, where you authorise/give them permission to take money (the amount for the repayment) out of your bank account.

Debit orders can be a fixed or variable amount

Having a debit order can make repayments much easier since you know for a fact that the payment will be done. All you need to do is make sure that the necessary funds are in your account for the transaction to be completed.

Making monthly repayments on time is very important because the last thing you need is to be placed in a situation where you end up with debt or even a bad credit record due to the fact that you missed a few monthly payments.

Life will be much easier (when it comes to repayments) if you make use of a payment schedule – an easily manageable timetable where you can keep track of everything.

#4) Prioritise your debt

If you are seriously thinking of getting rid of your debt, the first and one of the most important things that you can do is to prioritise your debt.

You need to figure out which debt is more important. Now don’t get me wrong, because all debt is important, no matter how big or small, but there are those that have much higher interest rates than others, and it is that debt that you should prioritise as very high on your list.

When should you start to prioritise your debt?

It will be a good idea to start if you are one of the people that have a total of different debts.

So how do you know which of your debt has the highest balances and are costing you the most money every month?

The answer is simple – the debt that can be described as those with the highest interest rate include credit card debt and short-term loans.

Secured asset debt should come first

Secured loans that include your mortgage payment and car loan should be placed on top of your list.

If you should fail to make payments on time you could end up losing your home or car, and this is something that you do not want to happen.

Another debt that should be high on your list is your income tax. If you don’t pay your income tax, you could also end up paying a lot more in penalties.

Medical bills are just as important, some of you might disagree, but if you fail to pay them, you could end up being sued, which will ultimately cost you a lot more money.

Always prioritise your debt

Of course, there are people who believe that you should try and pay off the debts with the lowest interest rates first. It is in fact a very good way to stay motivated and focused on paying off all your debt, just make sure that you don’t lose your focus on the debt that is actually costing you the most money at the end of every month.

So remember: Always prioritise your debt in a way that works best for you.

#5) Cut down on your monthly expenses

Yes, you have too many expenses, and in order to have an effective budget in place, you are going to have to cut back on some of your expenses.

While you are creating your budget, everything goes perfect until you get to the end after doing all the math involved just to realise that you don’t have enough money for all of the things you need to do.

Wondering where you might have possibly gone wrong? You probably already know the answer was mentioned above.

Let’s look at some of the ways that you can cut down on expenses:

  • To start with, you should write down all of your expenses, no matter how small or unnecessary it might be.
    You may think that R50 a day isn’t much, but what about if you spend that amount every day for a month – at the end of the month you will see a large amount – an amount that you could have saved for something more important.
  • Do you love eating take-away food or going to fancy restaurants to eat out?
    It is great and delicious, but it is a bad habit that can cost you a lot of money. Or what about movie tickets? Things these days are expensive. Why not rather grab some homemade popcorn and relax in front of the TV with someone special? It is sure to be a much more relaxed and romantic atmosphere.
  • Have you ever considered making use of a carpool to work?
    This could be a great solution to cutting back and saving money, especially if a few of you are living near each other. Not only will you be saving money on gas, but also reduce the wear and tear on your car.
  • You can also save on your electricity bill by installing LED lightbulbs that are more energy-efficient, or what about if you try and lower your hot water temperature? The hot water heater/geyser are a major energy user.

So if you are looking for ways to cut down on your monthly expenses, try these few (to begin with) and you will be sure to see a difference in your budget and can lead a debt-free life.

#6) Consolidate your loans or negotiate a lower interest rate

Struggling to pay off your debt? Consider debt consolidation.

But what exactly does it mean when you are consolidating your debt?

What it basically means, is that you are taking out one large loan which you then use to pay all of your smaller debt.

So instead of making various payments at the end of the month, you are now only making one single large payment.

Of course, one big advantage that you will have when you consolidate debts is the fact that you will enjoy a lower interest rate.

Negotiate a lower interest rate

But there are some of you who might feel that consolidating a loan is not the right solution, and you would rather try and negotiate a lower interest rate.

When you think about it, negotiating for a lower interest rate might not be a bad idea – you have nothing to lose and it can’t do any harm just to ask.

All you have to do is to request that the bank review your account and if it is possible to consider giving you a lower interest rate. If you are lucky enough to get approval, it can be a great advantage since it will go a long way in reducing the total amount of your debt.

But there are a few things to remember when you want to negotiate.

Tip 1) Be Prepared

It’s a good idea to get your credit report to see what your credit score is. If you have a good credit record, with up to date payments, chances are that this will be in your favour. You might also want to “shop around” and see if you can’t find a better deal with competing credit card companies.

Tip 2) Call & ask

As mentioned before, it can’t hurt to ask right? All you have to do is call the customer service number, which you will find on the back of your card.

Tip 3) Be persistent & polite

This is important. Be polite, yet firm – if they can’t help you, ask them to explain why.

Being friendly also helps, remember they deal with complaints and difficult customers every day.

#7) Earn extra money to help pay off debt

Earning extra money is always a great feeling, not to mention how much it can help you to pay off your debt.

Have you ever thought about earning some extra money with which you can then pay your debt?

It might be easy & fun!

There are a lot of ways that you can earn some extra cash. It can be something you are really good at or even better if it is a hobby that you love to do in your spare time.

Here are a few examples;

Do you enjoy baking?

Well if you are really good at it and regularly receive compliments, it could possibly lead to an extra income if you think about it. You can even turn it into a small part-time business and sell your goods at places like the local “farmers” market etc… to begin with.

Love animals?

Then dog sitting might just be the thing for you. More often people go on holiday and need someone to look after their beloved animals (feeding them, taking them for daily walks etc).

Are you creative?

Do you love to share your thoughts and ideas with everyone? Have you considered getting your own blog site and becoming a blogger?

It might be a good and fun way for you to make some extra money.

Are you in a position where you travel a lot?

Do you have a good eye when it comes to seeing things? Photography might be just what you need to do. Everybody loves looking at beautiful pictures of places and things.

If you are really good at taking some amazing photos, you can even try and sell your pictures to magazines.

But what do you do if you are not very talented?

Well it is not going to be easy, but it will still be possible to earn extra money to pay off your debt, it is just going to be harder work. It is called a second job.

You can waiter at a restaurant, be a part-time tutor for children etc… Many people have two jobs they do, in order to be able to pay off their debt and live a debt-free life

Whichever way you choose to do it, there are various ways that you can earn some extra money.

#8) Stay motivated & focused

There may be times that you feel down and have lost all hope when it comes to paying off debt.

When you are in a difficult financial situation, there are probably more than one time that you feel down, disappointed and have lost all hope.

But paying off your debt or saving money does not have to make you feel like this.

Okay. Let’s be honest, life is going to give you unexpected blows that you did not see coming, for example, if your geyser suddenly bursts one night or your car breaks down when you need it the most.

The most important thing to do is to pick yourself up and move forward.

But it is sometimes easier said than done.

What you need is to stay motivated & focused!

 To be able to stay motivated and focused, it's a good idea if you have a set goal or dream that you are working towards.

It can be various things that keep you going:

  • Car finance
  • Trip overseas
  • Saving money to finish your studies
  • The dream is to pay off your debt and enjoy a debt-free life.

One thing that you often see in movies is people that carry around a picture of something or someplace that is very important to them.

Well, why don’t you try it?

Post a picture of your specific goal somewhere you can always see it.

For example: if you want to save money to travel to Paris, get a picture of the Eiffel Tower – put it on your desk, your refrigerator or even use it as your computer’s home screen.

It really is a great way to stay focused on what you achieve in the end.

As mentioned before staying focused when it comes to financial matters is not always easy and you have to be patient, especially if you are working towards a financial goal.

Like the saying goes “Rome wasn’t built in a day”, and you can’t save money overnight – it takes time.

There will be months where you won’t be able to save as much money as you would like, but it doesn’t mean you should give up. Who knows there may also be times when you can save more than you bargained for, and that is always a good feeling.

Pick yourself up again out of that dark hole called debt, and keep on going until you are 100% debt-free; the important thing is that you should always stay focused and don’t give up.

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