Are you willing to come out of debt but not able to figure out how? We are here to help you! Most of the debt is accumulated due to inefficient money management. So if you don’t understand how to save and manage your income, you can become part of the vicious debt cycle again.
Therefore, before introducing you to our five proven tactics on how to get rid of your debts, we want to explain two main rules of money management to you.
Rule No. 1 – Save From Your Salary or Income
Keep your lifestyle a level down from your salary or income. For instance, use public transport and cut down on eating outside. This way, you won’t be penniless if you lose your job for some time. Certainly, you will need much less debt as you will be saving from your income for any extra expense or emergencies.
Rule No. 2 – Keep Track of Your Bills
You must have a list of monthly bills ready with you. This list includes debit orders, phone, electricity bills, EMIs, and other fixed expenses. You can take reference from your last six-month’s bank statement. A ready list of fixed costs will keep you from overspending. Moreover, you will be able to organize your payments. Checking your credit report often is also a good idea.
Now go through these 5 proven tips to get out of debt sooner:-
- Pay More Than the Minimum Due
Don’t just jump to the corner of the minimum due of your credit card bill. Leave this tendency and try to pay as much amount of invoice as you can. It will definitely help you to get debt-free faster while costing you less in interest. On the other hand, paying only the minimum due will take you years to get rid of your debt.
- The Debt Snowball
Another way of getting rid of debt is to repay your smallest one at the earliest. In the snowball method, you will need to pay minimum dues for other debts. In addition, spend more than the minimum due for the smallest one to finish it off quickly. This way, you will deal with fewer debts at a time. The Snowball method will save you from the stress of managing multiple loans at a time.
- Debt Refinancing
In the debt refinancing method, you apply for another loan from your current lender company. However, this would be better terms and lower interest rates. You can use this new loan for full repayment of the loan or debt with a higher interest rate. You can also do debt refinancing by taking a loan on lower interest rates from other companies. Make sure you take a sufficient amount to repay your current debt.
- Create & Use Emergency Fund
This is the time to use your emergency fund. If you haven’t created one, then do it now! Set aside at least 5% of your monthly income until you have an emergency fund equivalent to your 3-month income. This fund will also help you to cover your expenses if you ever get out of work. Moreover, a large chunk of debt can be repaid by using emergency funds.
- Follow a Practical Budget
A practical budget is set realistically on your fixed expenses. Take into consideration all your minimum debt payments with your other bills. Create a practical budget where you have money to pay all your bills and debts. You might need to stop spending on some leisure activities for some time. Nevertheless, it’s not worth it to watch movies and dine out with the pressure of paying back the debt in the back of your mind.
You should invest and save money from your salary to generate wealth and beat inflation. However, this is not possible without getting out of debt. A debt to income ratio of 21%-35% is considered normal. Get rid of any more debt than that for the sake of your financial well-being.
Aatish Khanna works with the Content Marketing team at Money Club – a digital chit fund platform that makes saving, borrowing, and investing your money more efficient. He writes on topics to help his readers understand processes so they can make better financial decisions. He’s the go-to person that his family, friends, and colleagues turn to for all their money matters. He loves to play board games and aspires to one day build his one finance-related board game and app.