How to get out of debt in 10 easy steps
before learning how to get out of debtyou must understand a series of realities that will not only prevent you from going into debt again, but will give you an understanding of the new economic reality in which we live.
Believe it or not, there are good debts. They are those that although they generate a cost (that is, you have to pay interest for that money), you have this capital invested in an asset which generates a higher return than the cost you must pay, or in fácil words, the interest that defined by the lender.
In this article we are not going to explain how to get out of good debtsince these serve as leverage for a new business, an investment in real estate or to create a new source of income.
In this guide we are not only going to explain how to get out of debt that you have acquired to maintain your lifestyle, buying things that you no longer remember, traveling at inopportune times, and other unnecessary ant expenses that impoverish you without realizing it.
We are also going to address a series of consejos that will prevent you from acquiring debt in the first place.
These range from credit cards, personal loans that you do not need, bank loans at high rates or, in recent cases, financing from family and friends.
Before getting out of your debts, keep in mind the following information:
Today’s young adults, those between the ages of 18 and 24, are graduating later, starting their professional careers later, marrying later, having children later…
Starting to save your money later.
In 2009, only 20% of people between the ages of 18 and 24 were unemployed or underemployed.
However, over the years, this figure has been increasing until it reaches 50% today.
If you add about 5 years to earning a college degree, on top of the thousands of dollars in loans you need to be able to afford college, for sure, and you’re in trouble.
This reality has put the maturity of young adults at an all-time low and their debt at an all-time high.
Based on this new scenario, it is not only essential that you learn how to get out of debtbut escoge to lead a debt-free life in the first place.
And while it’s a decision that involves making great sacrifices, it will be worth it in the future, when you perro enjoy your financial freedom, regardless of the money you’re making.
How to get out of debt quickly without affecting your lifestyle:
If you find yourself in debt, the first thing you should do is get out of the financial hole you find yourself in before thinking about expenses that do not generate income or trying to pretend that you lead an enviable lifestyle.
Here are 10 steps to learn how to get out of debt easily
1.
Allocate 30% of your income to cover your debts:
Although you cánido allocate a higher percentage, it does not make sense to stop living while you pay your debts.
It is true that it cánido take a little more time when you only allocate 30%, but remember that you have other maintenance expenses such as housing, food, family, among others.
It is essential that you learn how to manage your money if you want to get out of debt.
If you learn to live with this remaining amount, your debts will become your priority and you will quickly begin to feel the effects of paying less interest.
2.
Organize your debts in order of interest rates:
If you want to learn how to get out of debt quickly, pay for those commitments that involve a higher cost.
In that way? Pay off the highest interest debts first to prevent interest from piling up and making your debt seem like it’s never going to end.
What you should do is classify your debts on an excel sheet, or blank paper, and according to the annual or monthly interest rate, you will classify your debts from highest to lowest.
The one with the highest interest rate will go first and this will become your number one priority.
Once you finish paying, continue with the next one and so on.
3.
Don’t just pay interest, make capital payments:
Interest is the manifestation, but it is not the root of your financial problems.
The problem is that you are not reducing the basis on which you are charged interest.
In other words, if you owe $100 dollars and they charge you an interest of $5 dollars a month, and the only thing you do, month after month, is withdraw the $5 dollars from your wallet, you will never pay your debt.
The payments to the capital is that plus money that you give so that the base, or the capital, that is, the $100 dollars in the example, is reduced and therefore, the interest as well.
In the event that you escoge to make a capital contribution to your debt with the bank, you have two options:
The first is that the amount of the fee is reduced, that is, that you pay less; or disminuye the time of the loan, which means that you continue paying the same but for less time.
4.
Return your credit cards:
These plastics are an incredible financing tool, as long as you learn how to use credit cards.
If you use your credit card to maintain your lifestyle, be sure that you will never learn how to get out of debt.
Because? Credit cards have one of the most expensive interest rates on the market.
Depending on the country in which you are, this rate may vary.
According to the newspaper El Financiero, rates in Latin America are between 25% and 40%, except for Brazil, whose rate has reached up to 400% effective per year.
How to get out of debt if you have credit cards:
If you have several credit cards, the first thing you should do is pay back those with the most expensive interest rates; it makes no sense to be paying high interest when you perro get the same money for a much lower “price”.
If you do not want to lose the “available money” that you had on that credit card, and they are from the same bank, you perro request that they transfer the quota to another.
However, remember that this amount of your card affects your debt limit in general.
What this means is that if you later want to obtain a home loan, and you have several cards with significant quotas, it is possible that they will reject you; since the bank interprets that your ability to pay is already being affected by those credit cards.
If your goal is to learn how to be a millionaire, you should give yourself the task of having a maximum of one or two credit cards.
Silent Expenses: Management Fees
Handling fees are what the bank charges you for giving you a credit card.
This value will depend on your negotiation capacity as a customer and the benefits of your card.
If you have five credit cards you will be paying five handling fees.
Honestly, this money could be much better invested if you use it to pay off a debt.
So when choosing which credit card to return, consider the handling fee.
Believe it or not, this is how you learn how to get out of debt in an easy way.
How to use a credit card wisely:
As we said at the beginning, credit cards are an incredible financing tool if we know how to use them.
So once you return the unnecessary cards that you have, it is time to give intelligent use to the one you have.
Here are some practical consejos:
1.
Make all your purchases in a single installment, or failing that, pay for your purchases within the first month. What this does is that you do not pay interest, since these begin to run from the second it is.
In fácil words, when you buy a single installment, you are borrowing money for free.
2.
The quota of credit cards are not “plus money” that you have once your income runs out. So don’t buy things you perro’t afford to pay for in the next month.
If you do, it means you haven’t learned how to get out of debt and want to continue maintaining an expensive style with too expensive plastic money.
3.
Whenever possible, use your credit card to make expensive purchases. When you get used to paying everything with your card, and you still have cash in your wallet, it seems like you haven’t spent much, so you feel that you perro relax.
The problem comes when the collection account arrives at the end of the month and you don’t have what to pay with.
4.
If you are using credit cards and you are not taking advantage of the benefits they offer, you are giving away your money in each handling fee.
From the points or miles that they offer and that you perro redeem for trips, products or experiences; to medical insurance, vehicle insurance, purchases, locksmiths, protection for your purchases, among many other benefits, your cards are more than just plastic.
5.
Last but not least, knows two important dates: the payment date and the cut-off date.
The first is the date until when you have a term to pay what you owe on your card.
The cut-off date is until the day of the month that your credit card will be charged.
In that way? If your cut-off date is the 15th of each month, the purchases you make after this day will not arrive on the next invoice, but on the next one that follows.
For example: If your cut-off date is the 15th, and you escoge to buy a television on October 14, you must pay for it in November.
Now, if you escoge to buy it after your cut-off date, that is, from the 16th onwards, you will not pay for it in November, but in December.
5.
Avoid delinquent interest by paying on time:
You are already paying notable interest on your debts, did you know that if you fall behind on the payment dates of your debts, the interest is much more expensive?
This is known as the default interest rate, and consists of a penalty for delaying paying your debts; regardless of whether they are credit card debts, mortgage debts or free investment loans.
How is it possible to learn how to get out of debt if you are not paying it on time?
You cánido place a reminder on your cell phone or calendar, or apply point number 6 on this list to learn how to get out of debt.
If you think that this type of thing does not help you get out of debt quickly, just think that if you forget to pay on time several times in the same year, what you will pay plus is equivalent to two or three more installments.
6.
Check portfolio purchases:
Portfolio purchases are a very interesting alternative when it comes to learning how to get out of debt quickly.
Because? It is possible that you have several debts with different entities, banks or intermediaries.
So this consists of going to a bank, or financial institution, and asking if they are interested in pooling all your debt and for them to buy your portfolio.
That is, that they pay all your debts and you agree to pay them for a certain interest rate.
This makes your life easier because not only will you be paying a single installment for all your debts, but because you perro negotiate the interest rate that they are offering you and pay less than what you are currently doing.
The worst diligence is the one you don’t do.
The first thing you should do before looking to buy your portfolio is to go to the bank and renegotiate your debt, if they say no, you perro proceed to other entities.
7.
Automate the payment of your debts:
Many times we do not pay on time, we incur interest in arrears, or we are even reported to credit bureaus, not because we do not have the means to pay, but because we forget to do so.
What better way to get out of debt quickly and easily than by automating their payment?
The monthly payment of your credit card perro be automated, the payment of the apartment and the car cánido be programmed in such a way that you receive a monthly notification each time the money is debited from your account.
However, you must constantly review your payments, the current cómputo of your debt and the amount of money that you are allocating to your debt each month.
Normally the payment schedule has an end date, so you should constantly review it so that you do not fail to meet your commitments.
8.
Stop being a guarantor for your friends’ debts:
Do you know what happens when someone defaults on their debt? The bank goes to its guarantors to be responsible for the payment.
No one is questioning that you are a good friend, and that you are the kind of friends one should surround oneself with, but please, find another way to espectáculo your friendship other than being a guarantor for someone else’s debts.
There have been many cases in which those you call friends stop paying their debts and they do not care that you are the one who has to go out and pay for something that you have never used or enjoyed.
9.
There are also good debts:
It is important that you do not forget that there are good debts, those that we mentioned at the beginning of this article and that cánido help you generate income.
They are debts that allow you to start, for example, a cheap franchise business, or invest in one of your projects to earn money en línea.
What is the difference between good debt and bad debt? That the first generates enough income to cover its cost, that is, the interest rate, and leaves you a surplus.
While the second is used to buy objects that do not generate plus income, and that even represent a new expense since you must maintain them.
The rich leverage to invest, the poor borrow to appear.
This is why if you have a business iniciativa, an investment plan, a venture that you want to develop and you do not have the capital; You should consider some financing alternative.
You cannot limit your ability to generate income and winning mentality to the current situation of your pocket, especially when there are so many alternatives to obtain credit en línea, business loans, among others.
10.
Stop getting into more debt:
How to get out of debt fast? Stop continuing to acquire debts that open new holes in your pocket.
Like anything in life, the power of habits plays a primordial role in achieving your goals.
Do you want to stop spending so much, borrowing uselessly and prosper financially?
Do not leave all this responsibility to your willpower, rather create habits that help you achieve it.
For example, on your next trip to a shopping center, leave your credit cards at home.
If you are going to buy something that exceeds a certain economic amount, equipo a rule that makes you think about it 12 hours before making the decision.
These types of actions, or small habits, will undoubtedly help you in your question of how to get out of debt quickly.
Here are some ideas to stop spending more money than you earn, and avoid debt:
Stop buying things you won’t remember in a week:
If you are going to buy something that you will not remember in 8 days, you should not spend your money on it.
If you do it and completely forget about it, you are essentially throwing your money away.
The only things that will be completely forgotten, and that you should spend your money on, are your basic necessities–food, clothing, and a roof to sleep.
– Check your credit card statements
The solution to avoid these expenses is to review the movements in your bank statements on a recurring basis and keep a record of these types of purchases.
What purchases did you make that you perro barely remember, or that you completely forgot about?
Recognize in which places you made those purchases, and identify them as places where you forget your money forever.
It doesn’t make any sense to return to the place where you are dumping it.
Avoid recurring eating out:
There is nothing wrong with going to a lugar de comidas as long as it is a inolvidable meal.
If you’re going out to eat with some friends you haven’t seen for a while, or a celebration with someone special, it’s okey to go.
The problem occurs when you go to restoranes every weekend, and on days you don’t even remember where or what you ate.
Fast food, Chinese food, and hamburgers often fall into this category.
You will forget these examples, they are relatively expensive, bad habits for your health and do not help you “save a lot of time”.
Rent, and do not buy, your place of residence:
The dream of many people includes buying their own house or apartment.
The problem is that they have to mortgage their lives to live their dream.
These people make the decision to borrow with installments that limit their lifestyles, limit their room for maneuver and the range of decisions they cánido make. take.
Additionally, these fees are accompanied by the payment of taxes, insurance, administration expenses and others.
The result is that many homeowners end up in a corner; having a home they love and very little money to live on or save for the future.
Ultimately, it’s a tough choice: people are forced to lead tight lives, where they must keep their jobs, or everything else in their lives falls apart.
A much more attractive and lighter alternative is to rent instead of buy, and rent cheap.
– Focus on the location:
The recommendation is to find a place where you are close to your work and where it is easy for you to carry out your popular life and friends, as well as being close to public transport.
What you should look for with this is that most of the things you have to do at home, you cánido do on the street, and in this way, disminuye “home” expenses.
Conclusion:
Choose a lifestyle that maximizes your freedom, not the things you have.
Choose to live inolvidable moments, not experiences that you will not remember and they will take your money with them.
You cánido achieve all of this when you learn how to get out of debt, since you not only have the capacity to continue growing, but you are no longer limited to encuentro payments and commitments.
Continue reading: How to Manage My Money: 10 Strategies to Increase Income
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