Trying to get out of debt … but not sure how? These four tips can help.
#1. Make a Budget
Before you start paying off debt, you need to know how much money you earn and how much money you can reasonably spend. (Sounds basic, right? But many people don’t know this information.)
Write down your necessary expenses, like mortgage or rent payments, utility bills, insurance payments, and so on. Your bills should be less than your income. If you don’t have a lot of wriggle room, then try adjusting your lifestyle. For example, switch your premium cable service for a more affordable plan. Additionally, look for ways to boost your income, such as taking on a second job during the evenings and weekends.
The key is to leave some extra money in your budget that will go towards paying off your debt.
#2. Only Carry Cash
It’s so easy to use credit and debit cards that many people no longer carry cash in their pockets. But cash can help you stick to your budget.
Carrying cash means you spend only what you have. You can’t accidentally overspend if you’re paying cash for everything. Furthermore, seeing the actual money in your hand makes you not want to spend it on frivolous things.
#3. Pay More Than Minimum
Credit card companies make their money on interest rates, and if you are only paying the bare minimum each month, you are paying too much in interest fees. To pay off your debt without going broke, you need to pay more than the minimum.
There are two strategies for clearing up debt as soon as possible. Both of them involve making more than the minimum payment on at least one account. The two strategies are listed below; Pick whichever one you prefer.
#3a. Debt Snowball Method
“Debt snowball” is one of two types of debt payment strategies that financial experts advocate. You make a list of all your debts, but don’t take interest rates into account. Instead, rank them from highest to lowest based on their balance.
Start with the smallest debt first and focus on paying that off. You will still make minimum payments on all the other credit cards, but you’ll focus all your extra money to paying off the smallest debt.
Once you pay it, then move on towards the second smallest amount, and then the third smallest. This allows you to enjoy the psychological “win” of crossing debts off your list.
#3b. Debt Stacking
If the snowball method isn’t towards your liking, then perhaps the “debt stacking” method works better.
List all your debts, ranked according to the interest rate. Pick the account with the highest interest rate and focus on paying that off first, regardless of how much you owe (the size of the balance). You will still make minimum payments on your other loans, but you will throw all your extra money towards paying off the high interest loan.
#4. Create a Savings Account
After you finish paying off your debt, reward yourself. Take some of the money you would have spent towards debt repayment and instead “pay yourself” in a savings account.
Your ultimate goal should be to have an account that covers three to six months of your expenses, as this helps prevent you from going into debt again if an emergency comes up.
At this time we are continuing business as usual however our team will now largely be working from home. This limits our phone contact availability. Customer support remains available Monday to Friday but please email in to email@example.com with your query. We aim to get back to you within 48 hours. On receipt of PPI refunds our fees remain payable and can be paid via our website www.oraclelegal.co.uk/payments/ or via BACS. We are also working on some other areas of potential claim for you in connection with your PPI and will be in touch shortly where applicable to present this to you.