Dealing With Debt Step By Step
The best way to manage your debt is to break it down to an easy step by step process that you’ll be able to track weekly. Debt will really bring you down if you allow it to control your life. You have got to make a decision that you simply don’t need to be in debt anymore, and you have got to make the choice to begin moving forward today. It will not magically disappear, and that is why your decision today needs to be concrete and unwavering. It will be a daily struggle to do what you need to do to control your debt so you have to be intense and focused if you want to achieve freedom from your debt.
- The very first thing you would need to try to is to make sure you are being honest with yourself. Look in the mirror, and tell yourself that you are in debt up to your eyeballs. The first step of fixing any problem is admitting you have a problem. So go take a bathroom break and do it right now.
- Second Step is to come up with your budget. Sit down with a piece of paper or excel and write down all your monthly expenses. Start with the biggest and make your way down. When you get to the bottom total everything up and subtract that from your monthly Income. If that value is negative it’s time to start slashing things, or get a second job to make up the difference. If you are positive then take that amount and put it into a savings account next month until you have at least 1,000 dollars. Do whatever you have to to get this emergency fund set up as quickly as possible. Sell things if you need to.
- Second Step is to sit down and calculate the damage. You need to figure out what you owe and organize them from smallest amounts to the largest. Dave Ramsey who I am a big fan of suggests a Debt Snowball. The most logical would be to pay the highest rates of interest off first, but the psychology of debt is complicated. If you did everything logical and mathematical you probably wouldn’t have been in debt in the first place. So the debt snowball allows you to have little wins during the process because you are paying down the smallest debts first and then when it is paid off you apply that amount to the next smallest debt. Like a snowball gaining speed down a hill, you will have a lot of momentum and money to pay off the biggest debts you have when you get there.
- Once you know what your debts are and have a plan to pay off the smallest one first you need to contact your higher interest creditors and check out to see if they will lower the rate of interest on your debt. You should call them and ask them directly, and you should also consider balance transfers on credit card debt. Transferring your debt to a no interest card for a year while you are attacking the smaller debts you have will allow you to stop the bleeding in the meantime. Not all balance transfers are created equal, however, make sure the fees to transfer are less than the interest saved over the year. I wouldn’t worry about consolidation loans. You can usually do better asking for rate reductions, but If you see something that offers a lower rate than what you are paying and has favorable terms then go for it.
- Now you need to make sure you have a solid budget that you can operate from. Your budget must include all of your income and expenses. Depending on what your step 2 looks like I would set up all your debts on auto draft, and budget an extra 200 in spending money, and stop using credit cards altogether. Put the 200 in your wallet and tell yourself that is all I get for the next month.
- You will also need support throughout your journey. Talk over with your family and friends let them know about your journey so they won’t guilt trip you when you turn down the next spending spree. Studies show the more people you tell about a goal the more likely you are to hit it.
- Schedule time once a week to track your progress and analyze and adjust any issues that come up. The sacrifice today will be worth the price of being debt free.
Keeping a debt journal is a component of budgeting and tracking your bills. You need to make sure that you are evaluating your progress and making any necessary changes. As you get more concerned about paying down your debt, you may be ready to focus on refining your plan so you can pay things down quicker.
Paying down your debt and becoming debt-free may be a decision that you simply need to make for yourself. You must be committed, and you want to have a solid plan. Stay motivated, and look for methods to cut your spending and increase your income while you are carrying out your plan. Keep in mind my advice, and make sure that you follow through. The cost of not doing so is a life a debt and being in and out of Bankruptcies and more than likely relationships. Money strain can be a major factor when it comes to breakups and divorces. So flex you “Dollar Muscle” and get to work.
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