Paying bills after their due dates or receiving calls from collection agencies can be warning signs that your debt becoming unmanageable. You can take steps to get out of debt, like mapping out a plan to manage your finances. Below are some ways to get out of debt and more information to help along the way.
Start with figuring out what you owe and create a list of all these debts. List the total amount you owe for each, the minimum monthly payment, and the interest rate. The debt types you list may be:
A budget plan serves to help you manage your money. It can help:
Use your current spending to find out where your money is going.
Once you have a list of all your existing debts, begin building yourself a plan. The types of debt and the amount you owe will affect your strategy for paying them off.
If you can pay your debts with the highest interest first, you’ll end up paying less interest on them. This technique will help you to become debt-free faster. Try listing your debts from the highest interest rate to the lowest, and make at least the minimum payments on these debts. If you have any extra money leftover, try to pay down the debt with the highest interest rate first. Loans often carry the highest interest rate of debts you may owe, with credit cards coming in second.
Find out about interest charges and the minimum monthly payment due when planning to pay off your credit cards.
It’s easier to start paying your debt with the lowest balance first. This will keep you accountable because you’ll see a clear progression with your goals. The downside? This option will rack up more interest as time goes on.
If you have an outstanding loan with family or friends, have a conversation with them about how you can begin to pay them back. Committing to a scheduled payment plan may work and help you pay them back faster. Setting up automatic money transfers could help with sticking to the payback plan and prove to your family and friends that you’re committed to paying them back.
Set a payment timeframe that is reasonable, affordable, and realistic. Don’t make your timeline too long. You may fall off track because of a lack of progress, and you’ll pay more money in interest later. On the other hand, if your timeframe is too short, you may not be able to keep up with your payments and start to feel it’s unrealistic to continue.
Once a debt is successfully paid off, consider closing that account immediately. Only keep what accounts you need and can manage yourself. You should, however, keep an older account open since your credit score is based partially on how long you have had credit. If you close all of your older credit accounts, it can make your credit history seem shorter than it is and can damage your credit score.
You may consider consolidating your debts which is where you apply for a loan to pay off multiple debts with high-interest rates. Doing this requires only one monthly payment, and can help you manage your payments more efficiently. However, consolidating your debt is usually only beneficial if:
If you’re considering consolidating your debts, speak to a financial advisor about your options to manage your finances. Beware of using the credit you may free up with your consolidation loan, because you may end up with even more debt.
Don’t take on any more debt. Your goal should be to first pay down what you have and manage your finances. To avoid taking on more debt, try:
There are plenty of ways you can save money in your day-to-day life that will build up over time. If you drive to work, try walking or public transport. Other options include bringing your own lunch to work from home, making your tea or coffee at home, or you could opt to try using cash rather than your debit or credit card.
Improve your credit score by making payments bi-weekly and making sure the balance is paid off at the end of the month. Making sure not to use all the credit available to you is another way to improve your credit score, and paying your bills on time will help significantly to manage your finances.
If you want help with advice on how to manage your finances, talk to your financial advisor. They will be able to help you break down your goals, and help you learn how to pay down your debts effectively. It’s important to explore your options to get you debt-free sooner.