The free-flowing, easy availability of credit has helped us afford many of the things that would otherwise have to be put-off, but this concept has put us under tremendous financial pressure that many of us strive to overcome most of our lives. In this article, we guide you on how to get out of debt and start saving for the future in just one year.
Credit is absolutely wonderful, given that it can help you realize your dreams irrespective of your background or financial position, and the overwhelming reach it has provided to all of us, it could very well help you strive in life or fall down trying.
For people who have good control over their urges, and a proper ability to plan their finances, credit cards are an amazing tool. If you’re stuck in a debt trap right now, we can help you overcome or at least come up with a plan on dealing with the same.
Find Out Where You Stand
When you have multiple credit cards, loans and debt sources, you often get anxious simply to take stock of where you stand, but ignoring it is never the answer.
Before you can work on how you are going to pay it off, you should find out where your finances stand. Analyze all your debts closely and get a grand total.
Once you have the number in one place, you can easily get prepared to work on it. Understand whether it is possible to clear it off in a year based on your income and expenses.
Don’t get scared if the number is too big. You can follow some effective strategies to tackle it and improve your finances.
Pay Off The Larger Debts First
Don’t hesitate to use your reserves to eliminate high-interest rate debts. Using a part of your savings for debt repayment is not a wrong decision because you ultimately save on interest spent on those sums.
Once you have paid off the biggest debt, you can use the money you were spending on it to focus on other expensive debts.
Continue clearing the debts one by one by till you have the smallest debt left. This strategy not only helps get out of the debt fast but also keeps you encouraged as you progress.
Negotiate For Reduced Interest Rates
When dealing with mountainous debt, the aspect of keeping track of different debts, their interest rates, payment schedules and other terms can be mind-numbingly tedious.
Make a list of all your credit card debts, personal loans, student and housing loans and any others along with the outstanding balance, interest rate, minimum payment and due date.
Then, consider calling the banks and creditors to ask for a lower rate of interest on your borrowing. There are chances that creditors willingly reduce your rates based on your current balance and payment history.
If you have been consistent in your repayments in the past and maintained good relationships with the creditors, you have better chances of qualifying for a lower interest rate. The amount you save from interest can help you pay off the debt over the course of a year.
This might be easier said than done, but focusing on earning more is something that guarantees debt reduction. If you are working on your goal of paying off the debt within one year, you can look for ways to increase your income and use the money to get out of debt as soon as you can.
Make money from selling out some extras that you don’t need. You can even make some quick cash from extra cars in your household or any other stuff.
Another way to make more money is to take a part-time job or work overtime. You can even consider negotiating for a raise at your job to add to your income. Think of ways that work for you to earn more for a couple of months to prioritize debt clearance.
Cut Down On Expenses
Remember that every dollar you can save is another dollar you can use to clear your debt quickly. List your current expenses and identify what areas you can cut back on.
If you are honest with yourself and keen at saving, you can easily cut down on unnecessary expenditure. This is quite essential when you aim to get out of debt with a low income.
Some of the best ways to save from expenses include avoiding dine-outs, reducing unnecessary bills, cancelling the gym membership, using up gift cards and more.
The money you find from changing your spending habits would help you a lot when it comes to accomplishing your debt clearance goals.
Start Creating An Emergency Fund
While it may seem difficult to save while you are paying off debt, saving is important in life. An emergency fund can help you cover any unexpected expenses like car repair, medical bill or job loss.
It is recommended that you save 3-6 months worth of expenses in your emergency fund though you can start with one month which is still good.
This is a good starting point to save for your future emergencies while still getting rid of debt.
Get A Debt Consolidation Loan
It is easy to get unsecured personal loans that help you consolidate multiple debts into a single monthly affordable payment.
This loan often has a lower interest rate and can help you get the entire debt paid off in a short time.
Such a loan can work if you create a budget that lets you save from expenditure every month and avoids creating new debt during the course of the repayment.
Consider A Balance Transfer
While most of us tend to ignore the balance transfer offers arriving in mailboxes, they are actually a great way to speed up your debt clearance efforts.
If you have incurred debts on credit cards, you can use a balance transfer card to transfer your balances on a new card with 0% interest rate for a specific period of time, about a year, to get rid of all the interests.
A credit card balance transfer will free up a lot of cash saved from interests, helping you pay off the credit card debts quickly. Getting out of debt is easy with consistency and diligence.
Once you have identified your total debt amount and worked on your expenses, income and savings, you can decide on a payment strategy to make it simple. Make a budget and stick to it to make sure your savings are put to the best use.
Track your progress as you execute your debt clearance plan and keep making adjustments as needed. It is all about taking control of your finances and using the right strategies and tools. This guide should help you get started with getting out of the debt in one year and saving for your future.