Being indebted prevents you from spending your money on fulfilling your dreams. In addition, it can cause a lot of mental stress and anxiety as well as put restrictions on your life. However, debt is not a life sentence, and getting rid of it should be high on your priority list.
Paying off your debts can seem distressing if you don’t know how to get started. Which debt should I start with? How Long does Debt Repayment Take? What do you have to give up in order to pay off your debt?
Think about how you ended up taking on debt
It is important to be aware of the mindset that led you to this situation. Then you can focus on changing those thoughts and habits so you don’t end up repeating the same pattern. List the 3 to 5 factors that made you take on debt. Think about what you could have done instead. Make a plan that includes changes for the future.
Many end up taking on debt due to excessive spending, but this may not reflect your situation. Indebtedness can also be caused by, for example, a sudden life situation, such as a prolonged illness or divorce. Indebtedness happens very easily. Credit companies issue credit cards fairly easily, unless you have an entry in your credit information. You can find a loan without a credit line today, but overall, a subscription has a big impact on your chances of getting a loan.
The purpose of indebtedness is not to make you blame yourself – or anyone else – for getting into this situation. The purpose is to find the reasons for your debt so that you can develop a different perspective on how you spend your money and make your debt-free future possible. You will also learn how to give your children tips for wise money.
Make any necessary changes to your spending
You can have many good reasons why you have spent your borrowed money. However, your consumption habits cause unnecessary complications in building your future and therefore need to be changed. The first step is to stop unnecessary spending, create a personal budget and start debt repayment.
Review your spending for the previous month and record where your money has gone. Create categories in your budget that you list for each individual purchase. Start with housing costs and regular bills, such as insurance premiums, electricity and water bills, and your telephone subscription. Then list other necessary but more variable expenses, such as food and clothing. List your money and other purchases for your car and leisure. If you are unable to track all your expenses, put the rest of the expenses in the miscellaneous expenses list. Make sure you keep all receipts from now on. This will make it easier for you to follow them.
After looking at what your money is spending on, you have the opportunity to make changes to how you spend your money. If you spend too much money on one category compared to other categories, think about how you could save. For example, if you spend more than a quarter of your income on food, you should reduce your food expenses.
One useful rule for budgeting is the 50/30/20 rule. It represents the distribution of your net income between essential expenses, expenses you choose, and savings. Try to limit your spending to 50% of your income. You can choose up to 30% of the things you consider important to you, such as clothing, leisure or travel expenses. Try to invest or save 20% of your total income. To start with, save that portion of your savings to raise at least $ 1,000 in emergency funds to give you the flexibility of your budget. Therefore, unexpected situations do not force you to take on more debt.
Calculate how much you owe
You may not be fully aware of your current debt. Make a list of all your debts, whether it is student loans, car or other loans, consumer loans or credit card balances. For each debt, record the amount you still owe, the amount of interest and the minimum payment. Use the latest information you have available.
Decide how much you can pay each month
If you pay only the minimum payment you currently have, your debt will take years and pay you a large amount in the form of interest. Examine your budget and calculate how much you could pay per month to get your debt paid off faster. You may be ready to tweak important acquisitions over a period of time to pay off your debts a little faster. This is called a cut-off budget, which is designed to improve debt repayment for a limited time only.
Don’t forget to include expenses that you have to pay every six months or every three months, for example, to get a realistic idea of what amount you can make a debt repayment plan. Pay extra whenever possible. Consider how you can release more funds to pay off your debt.