Seven Tips for Getting Out of Debt
Making the decision to get out of debt is a big step, and a lot of people end up falling back on their word. Becoming financially stable is everyone's goal, but getting there isn't easy for everyone. On average, consumers in America spend thousands of dollars per year on debt for credit cards, auto loans and mortgages. The average debt per household, as of 2012, was $7,194 for credit cards (according to the U.S. Federal Reserve). A lot of credit cards have interest rates between 15% and 25%, causing consumers to waste hundreds of dollars annually in interest alone. If you're ready to jump off the bandwagon and into debt freedom, try following these seven tips.
Create a Budget and Stick to It
The first step to getting out of debt is to stop creating debt. By creating a budget, you will be able to keep more money in your pockets and stop the spinning wheel of debt. A lot of people end up in debt because they spend more money than they're bringing in. By having a budget, you can avoid this problem. A budget will show you exactly where money is coming and going. When making your budget, make sure to pinpoint areas, like eating out at expensive restaurants or eating too much fast food, which can quickly add up. You want to focus on important bills and eliminating unnecessary habits (hair stylists, Starbucks, etc.)
Go Cold Turkey on Your Credit Cards
Stop using your credit cards right away. This will stop more debt from forming, making it more difficult for you to pay off your debts. Instead, you should carry around cash. Make sure to stick within your budget and buy things that you can actually afford and need to have. If you have a hard time not swiping the plastic, due to temptation, then you should leave your credit cards at home.
Pay More than the Minimum
For the credit card debts that you have accumulated, you will need to begin putting more towards the balances each month. This will help to bring down the balance faster. So if you had a $2,000 balance and were only putting a $150 minimum payment each month, you would end up taking three years to pay off the debt. The best thing to do is pay off the full balance of your credit cards each month.
Focus on Your Smallest Debts First
You will need to look through all of your credit card bills and find the ones with the lowest balances and then start paying off your smallest debts one at a time. Then make the minimum payments on the other credit card balances. This is known as the snowball method.
Another option is to focus on the debts with the highest interest rates first. These are accumulating lots of debt each month, so it would be smart to knock these out first.
Renegotiate Your Mortgage Rates
It can be easier to renegotiate your mortgage rates when you are going through financial hardship. The best time to do this is when the interest rate has dropped lower than your current interest rate.
Refinance Your Mortgage
Another option is to refinance your mortgage, which can help to lower your monthly payment each month. Every bit of money you're able to save is helpful. Don't pass up on any opportunity to do so.
Get a Debt Consolidation Loan
If you don't want to worry about doing all of the finance work yourself, you can use a debt consolidation loan, which will bundle all of your debts together, giving you just one monthly bill to worry about.
Create a Budget and Stick to It
The first step to getting out of debt is to stop creating debt. By creating a budget, you will be able to keep more money in your pockets and stop the spinning wheel of debt. A lot of people end up in debt because they spend more money than they're bringing in. By having a budget, you can avoid this problem. A budget will show you exactly where money is coming and going. When making your budget, make sure to pinpoint areas, like eating out at expensive restaurants or eating too much fast food, which can quickly add up. You want to focus on important bills and eliminating unnecessary habits (hair stylists, Starbucks, etc.)
Go Cold Turkey on Your Credit Cards
Stop using your credit cards right away. This will stop more debt from forming, making it more difficult for you to pay off your debts. Instead, you should carry around cash. Make sure to stick within your budget and buy things that you can actually afford and need to have. If you have a hard time not swiping the plastic, due to temptation, then you should leave your credit cards at home.
Pay More than the Minimum
For the credit card debts that you have accumulated, you will need to begin putting more towards the balances each month. This will help to bring down the balance faster. So if you had a $2,000 balance and were only putting a $150 minimum payment each month, you would end up taking three years to pay off the debt. The best thing to do is pay off the full balance of your credit cards each month.
Focus on Your Smallest Debts First
You will need to look through all of your credit card bills and find the ones with the lowest balances and then start paying off your smallest debts one at a time. Then make the minimum payments on the other credit card balances. This is known as the snowball method.
Another option is to focus on the debts with the highest interest rates first. These are accumulating lots of debt each month, so it would be smart to knock these out first.
Renegotiate Your Mortgage Rates
It can be easier to renegotiate your mortgage rates when you are going through financial hardship. The best time to do this is when the interest rate has dropped lower than your current interest rate.
Refinance Your Mortgage
Another option is to refinance your mortgage, which can help to lower your monthly payment each month. Every bit of money you're able to save is helpful. Don't pass up on any opportunity to do so.
Get a Debt Consolidation Loan
If you don't want to worry about doing all of the finance work yourself, you can use a debt consolidation loan, which will bundle all of your debts together, giving you just one monthly bill to worry about.