Falling into debt can happen to anyone. Don’t beat yourself up about it. Instead of lamenting about the past, take steps to improve your future. Just like anyone can fall into debt, anyone can climb out of it and regain financial stability. You just have to follow these 5 simple steps:
Stop Borrowing Money to Pay for Products and Services
If you want to get out of the debt, the first thing you must do is stop financing purchases. This means that you do not buy anything you cannot pay for in cash. Also, stop signing up for new credit cards. Instead, focus on the debt you already have and how you are going to pay it off.
If you have no cash and absolutely need something, consider installment loans. But understand that these are high-interest loans and that you should only take them out if you can pay them back quickly.
Create a Buffer in Your Bank Account
Prepare for emergencies by creating a buffer in your bank account of at least two paychecks. This means that, while the money does exist in your bank account, you pretend that it does not, and you only touch it if you have an actual emergency.
Create a Budget and Then Stick to It
Creating a budget may seem complicated, but it is actually easy. All you need is a pen and a piece of paper. Right down on this piece of paper everything you need to pay for during the course of a month, such as rent, food and utilities. Also write down the price of these things, and do not put on this list anything you do not really need. Then, you keep to this budget. You do not spend above what you allocated, and you do not buy anything that is not listed on the page.
Order Your Debt
Just like you made a list of your expenses, you should make a list of your debts. This will help you pay them off faster.
You can list your debt in two ways. In the first way, you list your debt from smallest to highest, without regards to interest rates. Then, pay off your debts from smallest to highest. By paying off the small debts in full, it will give you momentum to pay off the larger ones, and it will make you believe that you can get out of debt.
The second way of listing your debt is by interest rate, from highest to lowest. Then, pay off the higher interest rate debt off first. But doing this, you will get out of debt sooner.
Throw Money at Your Debt
Sometimes money just comes to us. Whether it be from a tax refund or an inheritance or selling something, instead of buying something with this newfound money, take it and spend it on reducing your debt, using the list you created in Step 4.
In conclusion, you can get out of debt almost as fast as you got into it. Just follow the steps outlined here and you will be on your way to financial stability.