Can’t sleep thinking about how to get out of debt? Rest assured, there is always something you can do to take control of your finances.
Many people today have no idea of their level of debt and do not know how to get out of debt. Most feel like a slave to their loans and credit cards.
Therefore, the first step to achieve that long-awaited financial freedom is to recognize and put aside all those ties that involve the wear and tear of your finances and rob you of peace and tranquility of mind that you need so much.
It does not mean that you have to stop living. It is simply about learning to organize your personal finances and prioritize the most critical aspects. It is not always wrong to have debt, but it is essential to know what level of debt you are in.
There are four LEVELS OF DEBT that you could identify as your own:
- Mild Level: The level of debt that does not affect us financially or emotionally. It is a debt amount that you can solve without any inconveniences.
- Moderate Level: These average debts represent approximately 10% of your salary. Some debts could be with department stores, cell phones, services, or even the payment of a loan or credit whose amount is small.
Any responsible payment of this type of debt will be listed in credit history as a good rating. The moderate level of indebtedness may not be a very significant factor initially, but it may not allow you to advance towards your short-term goals.
- Severe or High Level: Represents 30% of your salary. The different financial responsibilities must be covered at this level, and a savings and investment budget must also be in place.
- Extreme Level: In extreme debt cases, you exceed 50% of your income in debt. This level of indebtedness should set off a red flag for your finances.
It is challenging to cope with this type of situation, and it can lead to incurring new debts, creating a snowball effect.
Once you recognize your situation and your level of indebtedness, ask yourself: How do I get out of debt without giving up all the things I enjoy?
According to some finance specialists, you probably have to do something different than what you have been doing.
The essential step is to examine and redirect the management of your personal finances, to approach the payment of debts differently.
The following are some practical tips to be able to cope with any type of debt situation:
a) Change your mind and accept the debt:
Often, we do not know how to get out of debt because we do not have the proper mentality regarding managing finances. Perhaps you have not thought about eliminating debt most safely without feeling like a slave to payments.
You must decide to buy your financial freedom by getting out of debt and acting on it. It is time to accept that the debt exists. We must make every effort to solve the situation without putting our economic stability at risk and without incurring more debt.
The idea is to do something different from what has been done for months, days, or years. Like any vice, the first step to ending it is accepting it. Therefore, you must begin to know your total debt or level of indebtedness and be determined to take the correct actions to eliminate them.
b) Break down your debts:
Making a list with all debts and organizing them will serve as an indicator to identify who you owe, how much you owe, the value of the monthly installments, payment dates, and interest on the outstanding credits or loans to plan the best way to deal with them.
You can organize your debts in two ways:
The first, according to Negociostart, is to place the debts from the lowest to the highest, which will drive you to work more when you pay your first debt. Almost always pay the minimum representing the 10% that you managed to save with your cost cut, repeating this step until the first debt is fully liquid and you continue with the others.
The second way is to place the debt that generates the most interest to the lowest.
c) Make a budget to keep track of all your expenses:
To end credit card loans and payments, you may need to immediately improve and control your personal finances. Knowing how much you earn and how much you spend is the fundamental step to end debt and have a savings plan that will serve as an emergency cushion.
The monthly budget is an excellent financial tool to help you keep track and make the most concrete and suitable decisions about the expenses you must reduce or do without achieving your goals. AVOID OVERLOADING!
d) Don’t spend more than you earn:
Having a healthy relationship with money means understanding how we should give it without falling into sudden expenses or those so-called ant expenses. By having a budget, you can stick to fixed costs, such as rent, electricity, telephone services, transportation, education, among others.
Also, cutting back on spending on nonessentials will be the key to getting out of debt quickly.
Take care of small expenses; a small hole sinks a shipJavier Ruiz-Galindo
e) How to get out of debt, using the snowball method:
This method consists of paying the smallest debts as quickly as possible. Once the smallest debt is paid, it is passed to the next one, and so on. This is known as the “payment snowball,” and it helps a lot solve the financial problems you are going through.
f) Take care of your credit limit:
Identifying that the monthly income being received is barely enough to pay what is owed is the key to taking the necessary measures and stopping on time. Do not acquire new debts and use the surplus money to lower the installments, say experts,
g) Restructure your debts:
Credit repair companies are an exciting alternative when it comes to “getting out of debt” for those who are in over-indebtedness. These companies negotiate with your creditors to pay all your debts with discounts through a savings plan that adjusts to your needs and payment possibilities.