Sometimes, we would like to have no debts. We feel that we allocate everything we earn to pay credits and we think it would be great to have resources for other expenses. How to get out of debt?
I know people who only buy in cash. They save and save until they reach the goal and take pleasure in owing nothing. They have always seemed somewhat exaggerated. Also, I have friends who pay everything on credit and, really, I always wonder, how do they pay all their debts?
Personally, I am overwhelmed by owing a lot of money. The reason? Sometime in my life I exceeded a little in expenses. It was a good lesson. I tell you the things I learned about getting out of debt:
Lessons to get out of debt
Manage your personal finances
The first step is somewhat obvious, but absolutely necessary. It’s about wondering how you are managing your personal finances . Questioning, being aware of how much of your income you are going to cover debts, is the first step to end the flood of interests. Some experts believe that you should not allocate more than 30% of your income to cover loans and credit cards.
Organize the debts you already have
The second step is to organize the debts you already have . There are two ways. The first, called a snowball, is to order the debts according to the amount: the smallest to the largest. The idea is that you can pay the smallest as soon as possible; to continue with the second and third; until finishing with the biggest. Getting out of small debts will allow you to have more money, which you can use to pay the capital of larger debts. The second way is: organize the debts according to the interest rates you are paying. This will reveal a spooky reality: you may be paying interest of more than 100%. The idea is to give priority to the payment of the most expensive debts.
A classic way out of debt is to measure the use of time or credit card
The cards are not an extension of the income, they are a credit and one of the most expensive in the market. If, for example, you still usually ask your card for cash, you are doing a bad business. You are paying that loan very expensive and paying dearly is to decrease your resources.
A mortgage transfer is, as a rule
A very good option to improve the conditions of your mortgage loan: a more favorable rate equals a more comfortable installment to pay.
Unifying all debts into one is a great solution
Look at the benefits of considering this option: One, you reduce the financial cost because, normally, credits offer you lower rates to credit cards; two, lower the cost of administering several credits; that is, instead of paying the charge for handling several cards and the commissions of several credits, you start paying only one; three, lower the pressure, because it is about fulfilling a single commitment on one date and not several on many dates per month. A home equity loan is a great option.
To get out of debt, make sure you don’t default on any payment . You do not want to be reported to any risk center to request a parallel credit to help you pay your credit cards.
Look at your expenses and make a couple of sacrifices
Before reapplying for a loan to pay another’s fee, look at your expenses and make a couple of sacrifices. More credits equals more interest and more interest equals less money in your pocket.
Create a real budget of income and expenses
The last step is to create a real budget of income and expenses , in which you will have this slogan: spend less than you earn. That is the route of those who know how to handle money, the route of millionaires.
As you can see, the way to pay debts is reduced to three variables: decrease the interest you pay for your debts, pay the principal of your debts to pay less interest and spend less.