How to Get Out of Debt




Getting out of debt’ is a phrase used often when it comes to discussing personal finance. It’s something almost all of us will have to deal with at some point, in one form or another. Student loans, credit cards, and mortgages are just some of the more common types of debt. While we all have our unique financial situations, there are still some general guidelines that can be used to help anyone get out of debt.

  1. Assess your existing debt
  2. Find a method that works for you
  3. Tools for managing debt
  4. Be wary of new debt
  5. Plan for the future
 

1. Assess your existing debt

The first step to getting out of debt is figuring out how much debt you actually have. If you’ve only got one or two debts, like a student loan and a credit card to pay off, this step is easy. Personal finances get harder to track when you have multiple debts on top of that, like car payments or hire purchase.

It’s important to start tracking your debt. You can do this with an app on your computer or phone, a basic spreadsheet, or good old fashioned pen and paper. Whatever your preference, note down each one of your debts with the following information:

  • Interest rates
  • Total amount still owing
  • Payment schedule (how much you pay, how often)

Keeping track of all your debts in one place will help getting out of debt seem like a more manageable task. Adding them to your budget calendar will also help you avoid late or missed payments. Once you have a good handle on the debt you want to get rid of, you may want to investigate some debt management strategies.


2. Find a method that works for you

There are many strategies and methods that people use to get out of debt. Not all of them will be suitable for your own personal financial situation. The best thing to do is to find out what works best for you. To get you started, here are some common ways that people get out of debt.

Pay off the highest interest rate debt first

Your debt with the highest interest rate is going to be your biggest financial gremlin. The longer this debt continues, the more of your money is wasted paying interest. Paying off your highest interest rate debt first will free up a larger portion of your income that can then be used to pay off other debts.

Look into a debt consolidation loan

When it comes to debt, consolidation means combining all your debts into one. A common way to help yourself get out of debt is through a debt consolidation loan. It may seem counterintuitive to get another loan when you’re already in debt, but debt consolidation loans exist for this exact situation. Many people find that by talking to their bank or lender, they can combine all their debts into one loan, often with a more competitive interest rate. A debt consolidation loan can even save you money in the long run.

Find other sources of income

Of course, one of the simplest ways to pay off debt is to find ways to increase your income. This is easier said than done, however. Aside from asking your boss for a raise, one of the fastest ways to make some extra cash is to sell possessions that you no longer use or need. Websites like eBay or Trademe are perfect for listing secondhand items for sale. 

Another way to make some extra money is to think about your skill set and how you could potentially leverage this into a marketable product or service. Websites like Fiverr and Upwork exist to support freelancers in offering their services to a global market.

 

3. Tools for managing debt

Everyone manages their debt in different ways, but thankfully there are tools available to help you. The most effective tool for managing your debt is a basic budget. Keeping a budget is how you manage the balance between spending and earning. If you can spend less than you earn over a long period of time, you’re on the way to financial freedom.


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