Being in debt is one of the worst things in the world. In no uncertain terms, it absolutely blows. However, while it may sound slightly bittersweet, the fact you are here, reading this blog, is a good thing. Sure, on the surface it may seem absolutely terrible because, well, the reason you’re here is that you’re up to your threadbare eyebrows in debt. But it also means that you have accepted your situation and are now ready to do all you can to rid yourself of this almighty burden, the one that is harming your health and crushing your dreams.
The good news is, no matter how much in debt you are, no matter how tight your budget, there is always a way out. It may not seem like it, but there is a light at the end of every tunnel. Of course, the big question on this front is ‘how’? How can you overcome the odds, escape the clutches of despair and turn your financial circumstance around so that you are able to finally enjoy a debt free existence?
Well, to help you with this - and develop a truly masterful plan - we have come up with a list of strategies, all of which have been proven to work. So, without further ado, let’s crack on and get your financial life back on track.
1. Stop Borrowing Right Now
Now, this may seem like a pretty obvious strategy to follow and on that doesn’t need to be mentioned, but you’ be surprised how hard it is to escape the vicious cycle of borrowing. Chances are, it is what landed you in this hot water in the first place. So, in the hope of it sticking, we’re going to say exactly what you already know: the easiest way to eliminate your debt is to stop borrowing. The reason this is so hard, however, is because we are humans that love to believe the world cares about us and works in our best interest. We love to think that our financial issues will disappear the moment we start to earn more, get a promotion, catch a break, wait it out or win the lotto. That is why you are so adamant you don’t need to change our habits, forcing you to keep borrowing more. It could be buying your partner’s birthday present on the credit card, taking out a loan to get a new car, or whatever; you have probably been kidding yourself, and that has to stop.
2. The Super-Duper Snowball Strategy
Out of all the strategies out there, this is one of the most celebrated because it gives you a sense of direction and works to help you pay down your debts in the fastest, most money-efficient way possible. Essentially, the way this strategy works is like this: you pay the minimum on all the debts you have but allocate any extra money you can spare on the debt with the lowest balance. As you can see from using this debt snowball calculator, this approach helps you reduce the amount of different debts you have, offering you an immediate sense of gratification and the encouragement to tackle the next one. It may not be the most efficient when it comes to saving the amount you spend on interest, but it does produce its fair share of quick-wins, which is a great way of adjusting your attitude toward your personal finance, while also keeping you motivated. What’s more, once the little fish have been knocked off, then you can use all that extra cash to reduce the bigger debts.
3. The Wicked-Wonderful Avalanche Approach
This approach is similar to the snowball strategy and yet entirely different. You see, instead of focussing on the debts with the lowest balance, you focus on the debts with the highest interest rates, paying the minimum on all the others like you do with the snowball strategy. Anyway, the aim is to keep chipping away at the biggest debt, chipping and chipping until that one is completely paid off and expelled from your life. Then you move onto the next high-interest debt of yours and do the same until, eventually, all of your debts have been paid off. What makes this approach so great is the fact it, mathematically speaking, saves you the most amount of money because you are tackling it from an interest rate point of view. The downside is, well, there’s no instant happiness like with the snowball.
4. Refinancing Is Another Option To Consider
Accepting your situation, budgeting yourself, trying to stick to either snowball or avalanche; it can all be too much to wrap your head around. That is why you should consider refinancing the debts you have instead. That’s right. Depending on the types of loans you have, their amounts and their interest rates, you could well find that you are able to reduce your total monthly minimums through something those in the industry like to call an interest rate reduction. Of course, like with everything these days, it is well worth shopping around to find the best deal but, basically, there are a plethora of lenders that offer personal loans you can use to pay off your current debts. This may sound slightly odd, but consolidating all of your debts into one monthly repayment can really help you manage your recovery better. Just make sure you are getting a better interest rate on your loan otherwise there really is no point in going down the refinancing route. It is also worth pointing out that, by refinancing your debt, you are not actually getting rid of it. You will still have the same amount of debt to pay off, you will just have a better interest rate, which means lower monthly repayments - or the chance to reach financial freedom a whole lot quicker.
5. Don’t Pay The Minimum. Ever
One of the worst things you can do is pay the minimum offered to you. This is just the worst. Why? Because you are not going to make progress as quickly as you would like meaning interest will still slap you in the face pretty hard. To give you the cold hard truth, by only paying the minimum you are signing yourself up to an eternity of debt. Not ideal. We are also not joking. Let’s say that you have $2,200 worth of credit card debt and an interest rate of 18.98%; by paying the minimum of $25 a month, you will never pay this debt off. It is called math. So, if you are struggling to work out which strategy to use first, go with this and find a way to pay more than the minimum. This is a surefire way to see progress being made.
The important thing to take away from this article is that with some planning, some effort, and some gritted determination, it is totally possible to start taking back control of your finances and climb out of whatever dark, debt-filled hole you have found yourself in. Your debt is weighing you down, keeping you from sleeping and stressing you out, but the best way to overcome it is by taking it on head first. No more of this running and hiding or paying the minimum; it is now time to take control and march through it. Snowball approach, avalanche route, refinancing, no more borrowing, and paying more than is needed; whatever you decide on; by sticking to a plan you will be able to enjoy the sweet sound of no more debts. That is a promise.