How You Can Break Your Debts and Save Money
When you get into debt, it can feel like your finances are spiraling out of control. Debts have a nasty habit of piling on and getting worse over time. However, it is possible to break free of debt and see the light at the end of the tunnel. You can then focus on saving and building your wealth, rather than letting it get whittled away by debt.
Here are a few tips to help you get rid of outstanding debt.
Create a Financial Plan
First, you need to check your current financial situation and see what’s going on. Write down your income and expenses, and focus on your debt and any unnecessary spending habits. Subscriptions and similar regular payments should be the first to go if you want to cut down on spending.
Create a budget and work out a strategy to live frugally. This will give you more money to work with, which can in turn help you pay off your debts.
The sooner you pay your debts, the less you end up spending on interest. It’s expensive in the short term, but can save thousands over time.
Consolidating Debts
If you have good credit, you might be able to consolidate your debts and reduce your interest rates overall.
By taking out a loan with a lower interest rate, you can pay off your debts right away. You then have a much simpler single debt to focus on. You can chip away at it without battling a hefty interest rate. However, this means you have to be trustworthy enough to take out that larger loan in the first place.
When repaying a loan, resist the temptation to only pay the minimum amount each month. Pay as much as you can afford.
Snowballing Debts
Another method that requires more hands-on management is snowballing your debts. This is a good option if you’re unable to take out a consolidating loan and don’t have a lot of money to work with.
Pay the minimum amount on every debt but the smallest one, and focus on repaying that as quickly as possible. Once that has been paid off, you can focus on the next debt in the line.
This way, you work on each debt one at a time and add to the amount you can pay off on each debt. It can cut years off your debts and save a lot of money on interest.
Declaring Bankruptcy
If you’re truly unable to pay your debts, you do have the option of declaring bankruptcy. This will wipe out your debts and interest and eventually allow you to start with a clean slate, but it does have consequences.
Before declaring bankruptcy, do some research and work out whether declaring bankruptcy is right for you. It’s also worth looking into questions like, “How long does it take to file bankruptcy?”
Filing for bankruptcy isn’t free, but it can be the best solution for outstanding debts and other financial issues.
