(Newswire.net — May 20, 2018) — All indicators show that household and personal debt are growing at a very fast rate, and things are unlikely to change anytime soon. For many people, this translates to an endless cycle of paying off the interest and barely making a dent in the principal that they owe, meaning that if nothing changes, they might end up grappling with the debt for the rest of their lives or until they are forced to declare bankruptcy, as many people have been forced to.
Thankfully, there are clear, tested steps that can help anyone get out of debt if they commit to making the necessary effort:
1. Track Your Spending
One reason why many people get into debt so easily is simply that they don’t really know how much they are spending. Many people deliberately do not check their bills or don’t take them to heart out of carelessness. This makes it easier for the debt to pile up and become a massive problem before they realize and act on it. You can use a budgeting app, spreadsheet program or even pen and paper to calculate how much you spend and which expenses are costing you the most money.
2. Prioritize and Cut Costs
After analysing how much you spend on different things, the next thing to do is to evaluate your financial situations and see which expenses you can do without or reduce to be able to put more money toward paying off the debt. Obviously, luxury items and leisure expenses will have to go first, while necessities such as food and utilities have to be maintained. Be objective in the evaluation and motivate yourself with the knowledge that after you get out of debt, you’ll be able to enjoy those things again.
3. Establish an Emergency Fund
Many people take on debt due to unforeseen circumstances. Since you’re trying to restrain yourself from taking on more debt, an emergency fund is a good way to create a buffer between yourself and your credit cards. A fund of $1000 will likely be enough for most emergencies, and it’ll benefit your debt profile since you won’t be adding more principal and payable interest to what you already owe.
4. Stick to Your Budget
After cutting down costs, you’ll need to calculate your income and then divide it into the parts that’ll go to paying for essential items, as well as the ones that’ll go to paying off your debt and your savings (it’s important that you continue to save, no matter how small). You can still make use of the finance management app on your phone for this since they often have notification features that’ll alert you if you’re in danger of going over any budget item.
5. Pay Off as Much as Possible
This is not a step per se, but just a statement of what has to be your overriding philosophy: pay as much as possible toward eliminating your debt, even if you have to make difficult sacrifices in other areas. What you have to keep in mind is that any sacrifices you make now will be much better than the hardship you’ll go through if the debt rises to an uncontrollable extent.