Tips on How to Get Out Of Debt
According to the Federal Government, the average non-mortgage debt for American households is over $45,000. This debt includes car loans, student loans, credit cards and other rotating accounts. When you add mortgage debt into the equation, the numbers are staggering. We often hear political pundits discussing the bleak consequences of high national debt, but what about the consequences of personal debt?
Eventually, a outsized amount of debt can mean giving up control. If you are spending most of your money every month just to pay bills or make bare minimum payments, then you don’t have control of your finances. If you are receiving calls from creditors, losing sleep over your financial situation or experiencing strained relationships because of money, then you are losing control in your life. In addition to these types of consequences, high debt levels can reduce your chance at obtaining financing for a home, car or business. In some cases, it can even impact your job because many companies are using credit scores to rate the responsibility of applicants. This is especially true in any job that deals with finance.
There are numerous financial, health and life benefits that come from reducing debt. The obvious benefit is that you end up with more money. Consider a very simple illustration. Suppose a person makes $2,000 per month and owes $1200 in debt. That leaves $800 for everything else, and most of that is going to cover basic things like shelter. Now, imagine the same person has no debt. Suddenly, he is $1200 a month richer!
Other benefits of reducing debt include, reduced stress and anxiety about money, the ability to save for a home, college or retirement, the ability to enjoy finer things in life, including vacations without cutting into the money needed for bills, and Increased options afforded by a stronger credit score.
Set Reasonable Goals – Many people fail to set reasonable goals when dealing with debt. Instead of breaking down the problem into manageable chunks, they stare at the entire mountain and are overwhelmed. Instead, divide and conquer your debt with goal setting and scheduling. First, make a list of all your debt accounts. Choose one at a time and work on it. Create a reasonable expectation for paying off each account.
Rejoice and Motivate- frequently, people fail at debt reduction because they think they must live a bare-bones life for years in order to pay down debt. Ultimately, this will result in a time of financial splurging similar to someone on a strict diet might binge on ice cream one weekend. To avoid undoing all your hard work, make sure you celebrate success and build in motivations. If you pay off a certain amount of money, reward yourself with a small treat. Just make sure you pay cash!
Run downhill- You know what they say about an object in motion, right? It keeps moving unless something acts to stop it. Don’t act to stop your debt reduction motion. Keep the balls rolling by using your gains on separate debts. If you are making payments of $200 on an account and finally pay it off, add that $200 to payments on the next debt. After you pay off a few debts, you will be making large payments on each succeeding bill, decreasing the time it takes to pay them off.
Given that debt can take years to pay down, many people suffer from burn out. Avoid this by giving yourself an occasional break. One month out of the year, cut back on the amount you are paying toward debt and do something fun. Just make sure you don’t make it a habit and you get back to paying off debt the next month .Emergencies like broken appliances or medical bills can derail debt reduction. The best way to counteract emergencies is to save up in advance so you don’t need to use credit to pay for them. Save between $500 and $4,000 before you begin a debt reduction plan. Getting yourself out of debt takes time, courage and will to do so. You may make mistakes along the way. But , Simply pick up and start moving the ball downhill again.