Are you currently in debt? Are you feeing overwhelmed with the number of bills or creditors you have to pay off? Like many of us who have previously been in debt, I know how difficult financial management can be. Many of us have never been taught the basics as a child and once we reach adulthood, we find ourselves making poor financial decisions that take us down the road of debt.
In an effort to ease some stress in your life and give you some hope, I wanted to share with you today 5 things you can do to reduce your debt and get yourself on the road to financial freedom. You can do it; financial freedom is possible; you just need to the right toolkit.
1. See where you can make cutbacks. Look at cutting back on little luxuries such as eating out at lunch each day or in the evenings. Instead pack a lunch and cook some simple meals at home for dinner. Also cut out any unnecessary expenditure, such as subscriptions and memberships that may no longer be of much use to you. A while back I cancelled my magazine subscriptions. I found that they were just piling up and I didn’t have time to read them. I was literally throwing my money out the window. When you start looking for areas to cut back, it is surprising how much you find you can claw back on and save. This savings can be directly applied towards your smaller debts such as credit and store cards in order to clear them more quickly.
2. Make sure that you are aware of exactly what is coming in and going out of your account each month. Trying to manage your finances and prioritize on paying off debt is impossible if you don’t keep a proper track of your income and outgoing’s. List down every little payment that goes out of your account so you know exactly how much you can afford to spend or put towards clearing your debts a little faster.
There are various ways you can do this. You can use a simple pen and notepad. You can use a spreadsheet on your computer. If you are computer savvy and enjoy having things online you can use any number of applications such as Quicken, Mint.com, Moneystrands, or Thrive. We personally use Quicken but I encourage you to browse and find which option would work the best for you. If you pick one that you are not happy with or don’t find easy to use, you will be less likely to keep track of your financials.
3. Consider consolidating. If you are finding it hard to cope with debt, you may want to consider speaking to a professional debt management company. By consolidating smaller debts with one larger loan you can reduce the number of repayments you have to make each month, cut back on the number of creditors to whom you have to pay interest, and dramatically reduce the amount that you pay out each month. For homeowners, a secured loan could be the ideal solution, as this can be spread over a longer period and this helps to keep monthly repayments down.
You should be aware though, that by taking finance over a longer period, this would mean you pay back interest for longer. However, if the interest rate is less than what you currently pay, and has lower monthly payments, then you will have more disposable income to put on the principal which in turn helps you reduce your debt at a quicker pace.
You also should do your research before consolidating to make sure that the organization you use is reputable. It is sad to say but there are businesses out there that thrive on taking advantage of people in desperate situations. Make sure the company is registered with the National Foundation for Credit Counseling to ensure their reputability. If you live in Canada, check with the Credit Counseling Canada association.
4. Don’t hit your limit. If you are constantly hitting your credit card limit, it just takes one small transaction to push you over the limit – and of course this means hefty bank charges being added to your account. Instead, set yourself a limit within the limit, i.e.) half of what your allowed. This will prevent your from exceeding your allotted amount and being stuck paying finance charges where you could otherwise use that money to pay off your existing debt. It will also help you manage any additional debt. The goal is to reduce it remember, not add to it.
5. Don’t take out an additional loan. If you do intend to take out another loan this should be by way of consolidation rather than an addition to your existing finance. Consolidating helps to ease your financial strain whereas another added loan will increase both. A loan would only serve as a short term solution. It wouldn’t take long for you to max it out which in turn will leave you with double the debt you had in the first place.
In desperate times, many of us can fall into the traps of quick fixes and impulsive decisions. Take a moment to pause and examine your situation and your options before you go ahead in making any decision. This list gives 5 ways things you can look into to start. By engaging in this process, you can ensure you are making an educated choice that will lead you to the road of financial freedom and a life free of money stress.
If you have been in debt and gotten out of it, what methods did you use? Please share them with your fellow readers in the comment option below.