It may not always be possible to avoid being in debt. Sometimes the income may fall a little short in covering the expenses. An emergency could also eat into cash reserves. The only option at this point is to borrow to tide you over.
But, other times, you can avoid being in debt. Do you really need a new designer bag when you have five others?
Was it necessary to be the big spender during last night’s outing? Insisting on paying everyone’s bills might have felt good for the moment. But, when the credit card bill comes, we can bet you will feel very different.
Here is the thing, you don’t have to wallow in debt for the rest of your life. We will show you how to get out of it fast.
1. Develop Healthy Financial Habits
You cannot get out of debt if you do not have healthy financial habits. Even if you clear the outstanding balances, new ones will come in. The best way is to manage with what you have.
Take a look at how you spend money. Can you, with all honesty, say you manage your money well? Here are some practical steps to take.
Track Your Spending
Take a keen look at where your money goes. Tracking expenditure with receipts is one way. You could also write down all the purchases you make.
If you want a convenient way to track your spending, our partners from Chunk finance have devised a comprehensive tool. It provides an overview of expenditure, thus allowing you to take more control of your finances. Any time there’s an overdraft charge, balance update, or if you are exceeding spending thresholds, you get a notification.
Cut Out Unnecessary Expenses by Developing a Budget
At this point, you should have a pretty good idea of your expenditure. Now look for ways to cut out unnecessary expenses. How about watching a movie at home instead of the movie theater?
Or, a romantic picnic, instead of expensive fine dining. Search the internet for DIYs instead of expensive trips to the salon or beauty spa.
Please note, even if your financial standing improves, don’t change these habits. Lifestyle inflation is the best way to get back into debt.
Some people believe that the more money they have, the more they should spend. Bad idea; how about sinking the extra cash into savings or repaying the debts.
Developing and sticking to a budget is the best way to go about it. Focus on priority items like Utilities, rent, mortgage, and debt repayment.
Please put aside some money for savings every month. Also, allocate an amount to an occasional treat here and there. But, forgo what you cannot afford.
Opt for Cash or a Debit Card Use
The allure of credit cards is you can spend money without actually having any. It is easy to use that card anytime you need to buy stuff, whether online or offline. What you don’t know is the expenditure is adding to your debts.
Resort to using cash or a debit card for future purchases. It limits your spending to only what you have.
Are we saying you should not use a credit card at all? The answer is no. But be more strategic about it when you do. You could, for example, keep the card for emergency use only.
2. Use the Right Strategies to Get Out of Debt
If you are committed to developing healthy financial habits, you will realize some savings. The extra cash will be useful when settling some debts. The next step is to write down a list of all your debts. Now, use any of the strategies we will share below to clear them.
- The snowball method of debt repayment is one way to pay off debt fast with low income. Allocate a minimum payment to all the debts you have. Now put any surplus cash to the lowest balance. Do this every month until you clear the debt. Now, move on to the next lowest balance and roll over the amount you used to pay on the previous debt. Any surplus cash should also go to the new lowest balance. The rollover allows you to pay off the debts faster. The snowball method provides wonderful motivation. It feels good to check off debts from the list.
- The Avalanche method of debt repayment shares similarities with the snowball method. The only difference is that you start from the highest to the lowest amount. The advantage is that you end up saving on the interest you pay on the high balances. But it does require a level of dedication and discipline.
- Debt consolidation means bringing all the debts together. You can then take a loan with favorable interest rates to clear the outstanding balance.
- 0% balance transfer credit cards provide a way to pay off credit card debt quickly. The issuers will give an interest-free window ranging from six months and above. It allows you to clear outstanding credit card balances without paying interest.
- Negotiate better terms for outstanding debts. A good repayment history and strong credit score will work well in your favor. The lenders would like to have the money back in the shortest time possible. If giving you better terms means that they do, many will not have a problem adjusting some of the terms.
- Get a side job, if the one you have does not allow you to meet your expenses. There are Tons of opportunities both offline and online. Consider what you’re good at and see how you can monetize it. Babysitting, dog walking, freelance writing, and data entry are just some ideas. The trick is to get a hustle that will not interfere with your daily job. Any extra money you make should go into clearing your debts.
If you want to get out of debt quickly, start by developing healthy financial habits. Track how you spend your money. It may surprise you how much goes into unnecessary things.
Develop a budget and stick to it. And, avoid using credit cards unless you have no choice.
We have also looked at some strategies you can use to pay off debt faster. These are snowball, avalanche, debt consolidation, and balance transfer credit cards.
Finally, consider a side job for some extra cash. You can remain debt-free if you try some of the things we have shared above.