Getting Out of Debt the Right Way
Debt is a difficult reality for many people. But just because it seems overwhelming does not mean that you can’t defeat it. Here are several steps to effectively overcoming debt.
The Cycle of Debt
The main problem with debt is that it seems easy to control but quickly spins into a much larger hole. Debt leaves no room for emergencies or mistakes, so it easily starts a cycle of debt. Maxing out a few credit cards soon leaves you making minimum payments of mostly interest. In essence, it is very easy to become a servant to debt as interest rates pile up and life continues to require more spending.
Getting Out
If you find yourself trapped in this seemingly vicious pattern of spending and collecting debt, it might feel like there is no good way out. But with careful budgeting and greater discipline in purchases, realizing a debt free lifestyle is a very real possibility.
The first thing to do is to create a realistic budget. Your household budget should include:
- Gas and electric bills
- Car repairs and fuel
- Grocery and food spending
- Phone, cable and Internet services
- Rent or a mortgage
- Loan and credit payments
Taking a clear look at your actual expenses per month will hopefully help you to refrain from unnecessary spending.
Cut Up Credit
Actual research studies have demonstrated that shoppers who swipe a card are freer to spend because checking out at the register is a much less painful process when using plastic. This is because buyers who hand over cash see the real money leave their possession. But when shoppers use credit cards, there is no visible spending, and they get to place the cards back into their wallets without surrendering any physical item of value.
Taking the option of credit away will help you to spend only the money which you have. And this will encourage you to save for important bills like food and housing. So putting your charge cards in a bowl of ice probably isn’t an extreme enough plan. Physically destroying the cards will work much better.
Prioritizing Debt
Once you have committed to a budget and found ways to reduce spending, it is time to focus on paying off existing debt. Organize all of the money you owe in order of highest interest rates first. Then work down this list, paying off the most expensive loans first. Gail Vaz-Oxlade, a renowned financial author, recommends putting any extra money that comes along towards targeting the first debt on the list. As you work down the list and begin to pay everything off, reallocate that money from payments into a savings account.
Taking these practical steps to financial freedom will gradually reduce your debt and help you to live within your means. Services like TitleMax, credit lines or other short-term loans might be helpful for a short while. But they are not designed for the long run. So it is important to start working towards financial stability as soon as you can.
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Category: Debt
