Getting a loan seems to be the norm these days. People borrow money for all sorts of different reasons.
Loans can help in business advancement and acquisition of assets. However, when the weight of total debt becomes debilitating and has significant effects on one’s finances and the general standard of living, drastic measures have to be taken to reduce the amount of debt you have.
There is no shortcut to becoming debt-free; neither is there a magic solution. The journey to being debt-free has to be undertaken with determination and tenacity.
If you have decided to become debt-free, here are seven tips that can guide you;
Know your debt
Humans are known to use denial as a defence mechanism, and this reaction might prove detrimental to your financial health if adopted as regards your debt.
The first step in finding financial freedom is to acknowledge the actual value of all your debt. Then, you compare it to your annual income to know your Debt To Income ratio.
This step will give you a clear view of your circumstances and help you to determine the debt-solving methods best suited to your situation.
Use the snowball or avalanche method
You can make a list beginning with debts with the highest interest rates and go down in descending order to those with the lowest interest rates.
Then, you endeavour to pay off the top debts as quickly as you can while making minimum payments on the others. You will continue to work your way down the list until you have successfully paid them all off.
This is the avalanche method of debt repayment that has the benefit of getting you extra money from the saved interest.
You can also use the snowball method by working your way from the smaller loans to the bigger ones.
There is a sense of accomplishment that comes from paying off a credit that gives you the motivation to continue to tackle your other debts. This method is perhaps more suitable for people who prefer instant gratification.
Use a debt consolidation method
You can obtain a personal loan and use it to combine your several debts into one monthly repayment.
Even with a less than stellar credit history, you can get a car loan with bad credit from financial agencies with low-interest rates.
Unsecured personal loans often come with fixed repayment periods and monthly payment, thereby giving you a clear idea of when you would eventually pay off the loan.
Do a balance transfer
After raking up a high sum on several credit cards, the best course of action might be to transfer the balance on all the cards to a new card and pay off the resulting amount on that card.
With this method, you will take advantage of the zero-interest period that most credit card agencies offer for the first few months after issuing the card.
The money saved on interest can be diverted to paying off the debt. However, you need to ensure that you make complete payment as soon as possible as the high-interest rates will take effect once the promotional period ends.
Use a budget
Deciding on a fixed amount to spend every month can make a world of difference in the payments you make monthly.
For this method to work, you need to take note of ways by which you can reduce your expenses and use them to trim your budget to the barest minimum.
Adhering to a budget will help you discover ways of saving money, but it will also help you to build excellent money management skills.
Use cash often
Using credit and debit cards to pay for things can make you oblivious to the actual amount you are spending and therefore, lure you into a false sense of security.
If possible, restrict your cards for emergency purposes alone and endeavour to use the cash more often. Seeing the money leave your hands or wallet is an excellent way to see the money you are spending and help you to cut back.
Develop excellent financial management skills
Trying to get financially free while maintaining poor spending habits is like pouring water into a basket; your efforts will be wasted.
Tailor your expenses according to your income, resist the urge to splurge on credit and keep finding ways to save money for an emergency fund.
Cultivating the ability to manage your funds effectively is the key to enjoying financial stability for the rest of your life.
Image Pixabay License CCO