How to get out of debt? Is it possible, if so, how hard can it be? There are many people asking these questions. If you are going through a hard financial time, or are are constantly under stress because of all the bills that you need to take care of every single month, then you may have come to a place where you will get answers to some of your most important questions. First of all, there is something that you need to know and that is:
You are not alone
In fact, there are many people out there with the same problems. Knowing that you are not alone in this battle and that there are many people going through the same problems will not make these problems go away, but it may give you a sense of hope and strength. Seeing how other people are able to fight for their financial freedom can empower you to do the same.
Why are so many people battling multiple debts?
It is possible and it is going to depend on you, your commitment, the specifics of your financial situation and the method that you are going to choose as your way of getting rid of your debt. As to why there are so many people are carrying a number of debts, the reasons can be different for everybody. However, there are still some common reasons why most people carry multiple debts.
The number of people carrying multiple debts is constantly growing, here is why
Nowadays, even paying normal monthly bills such as your electricity bill, or even affording enough food for the whole family are things that many people struggle to cover. Many people in the United States are having real trouble with making their regular monthly payments, and constant lack of cash for even the regular bills often leads to loans. There is a reason why the loan lending industry does not stop growing. Life has gotten more expensive overall. Even a good job with a stable monthly income is no longer enough to ensure financial stability. Actually, sustaining a stable financial state for a longer period of time is almost impossible for most people. So if we have to point out the main reasons why there are so many people in debt, it is going to look something like this:
Negative income to expenses ratio
While this may look too obvious, if the cash you have is less than the amount of all the bills that you need to pay, you often use a loan. However, we have already mentioned that even the hard working people with good jobs go through difficult financial times and often use the services of the loan lending industry. This is not because they are not trying their best. The thing is, that even if you plan your budget each month, that still may not be enough to keep you out of financial trouble. Often, people are confronted by unexpected financial expenses. Such expense can be anything from a sagging roof to a major health problem. Whatever the emergency expense is, it usually requires immediate action and in most cases, people are not prepared to deal with it. And so, taking out a loan is often the only solution in such uncomfortable situations.
Sometimes people go into debt because they want to have their own house
Nothing strange here, the American dream has always been tightly connected with owning a house. Who would not want to have his own house, right? In order to buy a house, people need to take out house loans simply because they cannot afford to buy a house on their own. And such loans take really long time to be repaid, now add some other financial trouble on the way, and there you have it – multiple debts.
Paying for education
Student loans have always been an essential part of the lives of those who wish to graduate from a college. It is nearly impossible to afford a good education without taking out a student loan, unless you are rich of course. Even though student loans are often considered as ‘good debt’ because of their self-investment nature, most people do not really consider the possibility of repaying their student loans for the rest of their lives. And such cases are not that rare.
How to get out of debt?
Now that we have discussed the various reasons why people end up in such uncomfortable and tricky financial situations, let’s have a look at what you can do to get rid of that debt. While there is no ultimate solution, that are certain steps that you can take in order to make your goal of debt relief achievable.
5 steps to help you get out of debt
Make a serious decision to stop yourself from borrowing more money
Unless you want to continue with repaying different loans for the rest of your life, you need to stop taking them out and find a way to adjust your lifestyle in a way that you would be able to manage without the assistance from the loan lending industry. That means that you need to cut your unnecessary expenses to a minimum. No more dinners in fancy restaurants, no more 60-inch TV screens or fancy furniture. That means an end to the credit cards signing up, an end to buying clothes and shoes that you do not even need. You need to focus, focus on your goal. Unless you make a drastic change in your lifestyle, unless you fully commit to getting rid of your debts, you will never achieve financial freedom
Start investing in an emergency fund
Even though you may not see the positives from this action straight away, you will thank yourself when the time comes. In order to stop borrowing money, you need to be prepared to deal with a possible emergency expense. If you are confronted by such expenses, you will have no other choice but to take out another loan. To prevent that from happening, start investing in an emergency fund. If you have some money left at the end of the month, do not waste them on something useless. Put them in your emergency fund, regardless of how little the amount may be. Each time you add money to the fund, the better you are going to feel about it and if a tricky financial problem comes your way. You will be well prepared to handle it on your own.
Make a realistic budget plan and commit to it
Calculating your budget to the last penny is extremely important. You need to know exactly how much income and how many expenses you are going to have each month and plan a budget that will allow you to come out on top. Making a budget plan will help you structure your finances in the most beneficial way. You will know exactly where all your money goes The goal here is to plan your finances in a way that you always have more money left at the end of each month instead of the opposite.
Organize all of your debts
This is closely related to planning your budget. When attempting to organize your budget, there are two approaches that you may want to consider.
- The first approach is to organize the debts from the smallest to the largest debt, regardless of what their interest rates are. By repaying your debts in such an order, you will be able to build momentum.
- The other method is often referred to as ‘laddering’. This method basically works by listing your debts from the one with the highest interest rate to the one with the lowest. This method probably makes more sense as by targeting the debts with the highest interest rates first, you will be able to save more money over the whole repayment process of all your debts.
Regardless of the method you choose to use, make sure to fully commit to it. Stick with it till the end or you will not see any positive results from it.
If you have a spare cash, use it for your debt repayments
If you get a salary raise, or you sell some stuff, do not hesitate to put that money towards repaying your debts. The more you put towards your goal, the sooner you will be able to reach it. While it definitely is not going to be easy, the reward at the end will be much worth it.