If you find yourself in debt, the first instinct is often to panic and try not to think about it. After all, it’s an unpleasant and unnerving thought. However, if you are going to get yourself out of debt and have a better future to look forward to, it’s really important that you take the scary first step of assessing your situation.
Work Out How Much You Owe
Experian recommends that the first thing you need to do with debt is understand how much you owe. Make a list of the total amounts that you owe to each lender, as well as what the interest rate is. This will tell you which debts to prioritize. It’s worth approaching your lender to see if they will consider dropping your interest rate for a time to allow you to get ahead on repayments.
You can also consider paying off the debts that are costing you the most in accrued interest first. Another approach is to prioritize smaller debts that you can clear more quickly, therefore freeing up the minimum payment amount that you would have been making to put towards your larger debts.
Next, make a list of the minimum monthly payment amounts, along with your other monthly income and expenditures. By doing this you can understand if you have any extra money available to get rid of some of your debt more quickly, and you’ll also know how much money you can spend each month without getting yourself into further trouble.
Cut Right Back
The financial guru Dave Ramsey provides a ‘tough love’ approach to getting yourself out of debt. He advocates for ‘living off rice and beans’ if that’s what it takes to pay off your debts. Cutting back on luxuries is a great way to free up cash to pay off debts. However, you should be careful when doing this. If you cut everything right back, you will find that it’s impossible to stick to — almost like a crash diet. So, cut back where you can, but in a way that’s sustainable!
Consolidating your debt with another loan can be a good approach as it makes your debt easier to manage. It can also be a way of minimizing the amount of interest you are paying, provided that the interest rate for your consolidation loan is less than the interest you were paying before.
There are a few options for consolidation loans. The advice from Fast Money is that a car title loan is all you need to solve your financial crisis development. Alternatively, you could look into a balance transfer credit card or a personal loan. Just be diligent and ensure you aren’t inadvertently increasing your date when consolidating.
Increase Your Income
Measures like renting out a spare room, selling old and unwanted possessions, or taking on a second job can be really effective for getting some extra money coming in to put towards your debt. Just be sure you have thought about how these changes might impact your life and how long you could carry on with them for.