Getting into serious debt didn’t just happen overnight. It’s a culmination from a lifetime of overspending, poor financial decisions, and a buy-it-now, pay-it-later mentality.
If you can understand why you went into debt in the first place, and train your brain to adhere to some good financial principles, you can find yourself on the path to financial success.
Ask yourself the following questions:
1. Why Do You Have Debt? –
This first question is the hardest one, and it requires you to look at yourself and your spending habits. Many people go into debt because they bought more than they could afford. After all, if your friends all have nice new cars, you probably want one too.
However, there are other reasons for going into debt. Getting a divorce or leveraging into a failing business are other culprits. Take some time to sit down, have an honest conversation with yourself, and write out the reasons why you have debt now.
2. How Are You Going to Stop Getting More Debt? –
Paying off your debt is ineffective if you’ll just relapse in a few years. What are you going to do to avoid making those mistakes again?
Take a look at the reasons why you have debt. This process does take some time, especially in a consumer-driven society where we are bombarded with messages to spend, spend, and spend some more. However, recognizing where your debt problems lie and making an effort to start fixing them starts to train your brain.
3. List Your Debt –
Now make a list of all your debts. This step may be a bit depressing, but once you set your mind to it, you can start working your way out of debt.
Make a list of how much you owe, how much the interest rate is, and how is the minimum payment. Total up all the minimum payments, because this is the amount you must pay each month. Ideally, you are going to want to pay more than this amount, but use this for basic budgeting purposes.
4. Make a Budget –
Now you need to make a budget. This does take some mental staying power, but if you can keep to your budget, you can start working your way out of debt. A basic budget should start with your take-home income, and then subtract your necessary living expenses. These are things like mortgage or rent payments, electric bills, and of course, your credit card payments. While you can set money aside for little luxuries, your goal here should be to put as much money towards paying off your debt as possible.
5. Stick to Your Budget –
Changing your old bad spending habits and keeping with your budget will prove difficult. However, if you can figuring out how to live within your means while paying off your debt, your brain will start to think about money differently. You’ll find yourself becoming more financially responsible and looking for ways to save money instead of spending it.
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