Getting out of debt is a common goal in today's economy. To get out of debt, one must first understand how they got in debt in the first place and then change their spending habits. One can fall into debt for many reasons, such as medical bills, college tuition, credit cards, and more. Debt can also grow at an alarming rate, so it's essential to keep track of your spending. If you are already in debt, there are many ways to get out of it - some faster than others. This article will highlight some of the ways to get out of debt.
TRACK YOUR SPENDING HABITS
The first step to clearing out debt is recognizing how you got into it in the first place. A great way to do this is by tracking your spending habits. By keeping track of every penny you spend, you will determine where your money is going and realize ways to save more, thus allowing yourself to be further in debt.
FIGURE OUT YOUR SOURCES OF DEBT
There are four primary sources of debt that Americans may find themselves dealing with. These include credit card debt, medical bills, student loan debt, and mortgage/housing debt. The way to get out of debt for each of these sources of debt is different, so it's essential to find the source.
BUDGETING & FINDING NEW INCOME
After you have figured out where your debt comes from, it is time to create a budget. Creating a budget can be difficult at first, but it's the best way to see where your money is going. A budget can be made either on paper or through an app. The next step in getting out of debt is finding new passive income sources. Again, it may sound difficult, but there are many ways to do this, including a second job and selling items you don't use.
CREATE A FINANCIAL INVENTORY
Once you have created a budget, found new income sources, and not revoked from your debt, it is time to make a financial inventory. You should list all your debts by amount owed and interest rate in this inventory. This inventory will show you the highest interest rate debts first so that your focus can be placed on them.
LOWER YOUR INTEREST RATES
To lower your interest rate, one way to pay your credit card, reducing the amount owed. However, if you owe a very high amount and don't have access to your credit card, this option may not work. Another option is to pay off your debt in full if you can do so. This option is the most effective, but it may take a long time, so be prepared to stick with it!
PAY MORE THAN THE MINIMUM
If you can pay more than the minimum, do it. It is always good to pay more on any debt, including credit cards and mortgages/housing loans. Spending more on these debts will lower your debt much faster than paying just the minimum each month. However, it is essential to note that paying more than the minimum can be difficult depending on your income, so if you are unable to pay more than the minimum, you should not feel bad about it.
CONSOLIDATE YOUR DEBT
There are many types of debt consolidation services out there. These include balance transfers and home equity loans. While these services can be beneficial, they are not for everyone. Before using one of them to get out of debt, speak to a financial advisor about them to understand how they work and if they fit your situation/financial goals.
A balance transfer is when you move all or part of your high-interest debt, such as credit cards, to another account with a lower interest rate. This option does not reduce the amount owed, but it can help lower the monthly payment, and total interest paid overtime. The best place to apply for these services is through banks that already have your money. This way, there will be no additional fees for obtaining one of these services.
Getting out of debt can be difficult and requires time and commitment, but possible. It may require changes to your income and lifestyle, but the benefits outweigh the costs! Once you have a plan, it only gets easier from there. By tracking your spending habits and finding new sources of income, creating a budget and financial inventory, lowering interest rates and paying more than the minimum whenever possible, and consolidating your debt if necessary, you will be able to get out of debt much faster than you thought possible.