You must have heard the term debt loop before. It’s a concept where you’re short on money and get into debt. Sometimes, this is not due to high basic living costs but overlooked unnecessary expenses.
Then, you don’t make enough to pay it off, so you get indebted once again to cover the debt. It’s a vicious cycle that constantly increases your monthly expenses (through credit and interest payments), and it seems like there’s no way out.
However, this doesn’t have to be the case.
There are many ways to break the chains of debt and restart your financial life. The next time, you will know better and achieve long lasting financial stability (perhaps even prosperity).
So, how do you do this?
Here are a few essential tips and tricks to help you get there quickly.
1. Make a List and Start with a Debt Snowball
You need to start making a list of all the debts you own and be as pedantic and detailed as possible. Make a table listing the total debt value, the interest rate, and the monthly credit rate.
In practice, paying off the highest monthly credit rate first sounds the best. In the long run, you save the most by eliminating the debt with the highest interest rate. Psychologically, you gain the most by eliminating the biggest credit.
While all of these strategies are valid, most experts suggest a method known as debt snowballing. The way this works is simple – you eliminate the smallest debt first. This way, you’re kickstarting the process and already seeing some results. In a way, it gives effects similar to debt consolidation (the next method we’ll discuss).
It’s incredibly important that you’re well-organized in your debt snowballing and approach it step-by-step. The simplest way to get there is to use a debt snowball worksheet. This way, you’ll get a better overview of your current financial standing and even be able to track your progress across the board.
2. Debt Consolidation
The next thing you should try out is to consolidate your debt. Sometimes, you have multiple debts, each with a different monthly credit payment deadline and interest rate. From the standpoint of accounting, this makes things difficult.
Consolidating debt means taking a single larger loan to cover all your debt. While the amount of debt remains the same, the results can be quite favorable in other ways. For instance:
- You get to focus on a single debt instead of multiple.
- You may end up paying less on interest.
- It expedites your debt payoff.
- It may reduce your monthly credit payment.
- In some scenarios, it boosts your credit score.
Now, while this method sounds like a good idea, in general, the problem is that it contrasts with some of the previous methods we’ve mentioned. If there are no minor debts that you can pay off quickly, debt snowballing is no longer an option. So, you need to choose wisely.
There are a few problems here, as well. For instance, it may come with some added costs. It may also increase your interest rate instead of lowering it. Over time, you might end up paying more. Most importantly, it doesn’t solve your underlying financial issues.
3. Create an Extra Stream of Income
Resolving debts is like treating symptoms. While it alleviates the pain, it doesn’t solve the underlying illness that caused them. For some people, the reason why they’re chained by debt is that their income wasn’t big enough to cover their needs. Therefore, they had to go into debt to finance their lifestyle, which started them out on this path.
Increasing your income can improve your financial status and pay off your debts. Even more importantly, adopting a more lavish lifestyle can ensure you don’t land in the same trouble again.
The biggest problem with this is the lack of time. There’s a misconception about people ending up indebted because they’re lazy or irresponsible. This is not necessarily the case. Some people work 2-3 jobs and still can’t cover all their expenses. The problem is, if this is the case, they don’t have extra time.
Fortunately, you can always create a passive stream of income. In this day and age, you can:
- Create a course
- Write an ebook
- Engage in affiliate marketing
- Sell photography online
Besides, the gig economy doesn’t take as much time, and it may give you just the boost you want.
Aside from this, you could also try to spend less or, at least, spend money wiser. Speaking of which…
4. Start Shopping Smarter
Another way to start saving money is to become wiser about your spending. There are a few things you could do here.
The first thing you need to try out is couponing. This way, you can make bulk purchases for much less. The problem is that this is time-consuming and requires much research. Still, it can be quite rewarding.
An average American spends $1,100 on drinking coffee out every year. How many credit payments is this? Now, we don’t suggest that you cut all of them, but you could probably cut a few. More importantly, it’s not just coffee. Track a few such expenses, and you’ll see a massive difference.
One of the ways to be more strategic with your spending is to plan your meals. Home cooked meals are not just cheaper; they are also healthier and of much higher quality. This is especially the case if you cut down your cooking oil use with an air fryer.
Stop comparing yourself to others. Just because your friends and neighbors are getting new iPhones doesn’t mean you should do so.
Achieve Long lasting Financial Stability
Freeing yourself from debt is not easy. It’s not supposed to be easy. The problem doesn’t end with getting out of debt. It ends when you develop habits that prevent you from getting into the same trouble again.
This is what’s so great about the above-listed methods. They don’t just save you from debt. They also offer a long-term solution and ensure financial stability. This is an offer that you just can’t pass on.
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