When you are carrying financial obligations, it is natural to want them gone as soon as possible. However, there are many people who not only have trouble with quickly repaying the money that they owe, but they ultimately fail in their attempts to do so and continue to repay their financial obligations for a very long period of time. Whether it is because of a lack of knowledge or due to a lack of effort, many people just can’t seem to find a way to make their financial problems go away.
If you are one of these people or if you are kind of new to having debts and you want to make sure that you would not be carrying your financial obligations for a long time, you may have just come to the right place. We will try to give you some directions on how you should approach your financial obligations repayment so that you can boost the process, get ahead of the issues and reach the point of financial freedom. And we are also going to discuss what you can do to improve your financial situation so that you can ease the process of repaying the money that you owe, as well as to be able to sustain a debt-free lifestyle after you manage to repay the money that you owe to your creditors. Here is what we will be mainly focusing on:
- How to tackle your financial obligations for optimal results
- How to best deal with more than a single financial obligation
- How to improve your budget management and sustain debt-free living
This information alone is not going to be enough to change your financial situation for the better unless you are ready to adjust your lifestyle according to your goals, commit to your purpose and start taking actions instead of waiting for things to happen on their own.
How to tackle your financial obligations to get rid of what you owe as fast as possible
We are going to pay attention to two things here – a mistake that is quite common among the majority of people who are struggling with financial obligations and two repayment strategies for getting better results with your repayment.
Stop making this mistake and you will be a step closer to financial freedom
There is a mistake that is quite common among many people battling with debt – make only minimum monthly payments on your financial obligations. This is something that you may have heard from your creditors, but they have probably presented this idea in a different light. Loan lending companies tend to advise their customers to make minimum monthly payments with the idea that they would be able to afford to repay what they owe without much trouble. What is the main purpose of every credit card company? To make a profit. So it is only natural for these companies to give you advice that best suits them. You see, by only making minimum payments on your financial obligations, you are mostly paying interest. That way, you will be repaying your debts for a very, very long time as you are almost not even reducing the actual amount of money that you owe. What you need to do is to get the details of your last few payments and see exactly how much money you have been spending on interest. With your next payment, make sure to go above that amount. That way, you can be certain that your payments are actually reducing your financial obligation.
Two ways of approaching your debts
Many people get caught up with their trouble and basically get lost in their repayment process. It is really difficult to repay multiple financial obligations as you must also manage your other regular monthly expenses. And so many people do not really follow a certain strategy when they are repaying what they owe, which ultimately does not lead to the best possible results. In order to get the fastest results of your repayment process, you would need to have a clear vision of what you are doing. Here are two ways that you can tackle your financial obligations so that you can get rid of them as fast as possible:
The snowball method
As kids, we have all played with snowballs. When you are rolling a snowball, you start with a tiny ball and by the end, it can be as big as you. This is the idea behind this repayment strategy – to start small and win big at the end. What you need to do is list down all your current financial obligations and determine which of your financial obligations is the smallest one. Once you know that, you need to focus your attention mainly on this debt. Getting rid of the smallest financial obligations might not seem like that big of an accomplishment at first, but once that debt is gone, you would have lower the number of financial obligations that you are carrying. Seeing that you have one less financial obligation to repay can really give you strength to go on. Repeat the same strategy with the smallest debt that follows. Seeing how you are getting rid of one financial obligation after another will give you a true momentum and believe that you can actually do this.
Start from up top and down
This method is quite different and similar to the snowball method. Here, you are also going to be focusing on a single debt at a time, however, it will not be the one with the smallest amount. With this method, you need to list all your current financial obligations and determine which has the highest interest rate. That’s right, you need the one that takes the most of your money. Once you know which that debt is, you need to focus your funds on that financial obligation while only making minimum payments to all of your other accounts. It might seem like a scary plan to follow, but if you are able to do it, you will see the great benefits. Getting rid of that higher interest rate financial obligation will make the repayment of each financial obligation that follows a bit easier. Repeat the same exercise until there are no more financial obligations left for you to repay.
How to deal with multiple financial obligations
If keeping track of multiple bills is becoming too much for you and you are also looking for a way to lower the terms on your multiple loans, probably the best way would be to use debt consolidation. This is a financial method that allows you to combine all your separate bills on different accounts into just a single monthly payment on a single account. With this service, depending on your credit score among other factors, you can normally qualify for new terms on your financial obligations, including a reduced monthly payment and a lower interest rate.
How to sustain a debt-free lifestyle
Getting out of debt is one thing, being able to sustain financial freedom is a whole different story. First of all, you need to acknowledge the fact that in order to get in a situation of carrying multiple financial obligations in the first place, you were probably not doing the best job at managing your budget. Which means that if you make the same mistakes again, you would probably end up in the same financially uncomfortable spot. Here are a few things you might want to think about:
- Start tracking your expenses so that you know exactly where you are spending your money on.
- Minimize your costs, get rid of all the necessary expenses.
- Adjust your lifestyle according to what you can actually afford, not what you would like to be able to afford.