Factors to Consider to Be Debt Free
Most people are in debt nowadays. This is either students loans, credit card debt, medical debt and others. When one is in debt it can be hard to save for retirement, meet up with friends, raise a family and even start life. However, you should not let your debt to define you. Instead you need to come up with a strategy to help you get out of debt. This guide provides you with tips that will help you eliminate debts and take control of your money.
Start by confronting your debt. It may be frustrating to think about the debt you have. However, when you ignore the problem things will only get worse. You need to tally all of your debt. This will help you to know the whole amount of debt you are in. However, you need to also consider your income with the debt. It is advisable to calculate your debt to income ratio. You will be able to get a clear idea of the debt you are in. Having an idea of the extent of the problem will make it easy to come up with a solution.
You need to come up with a budget. Take note of your expenses each month such as food, utilities, phone bill, mortgage or rent and car payment. Use 50% of the budget towards important expenses, 30% for wants and 20% for debt repayment and savings. The key is to set limits on the amount of money you spend for fun every month and ensure you stick to it.
You need to avoid expensive habits. You will get space in your budget. You can choose to run in your neighborhood instead of signing up for gym membership you your to clear your student loan debt.
It is essential to pay more than the minimum. After you lose your hobbies that are expensive, it will be easier to pay more than the minimum. It is advisable you approach debts the same way as bills. It is advisable you pay your debt before anything else. In case you have extra cash put it in your debt and not on shopping and drinks.
You should consider the snowball method. This means arranging your debts from the smallest to the largest. Put all the excess money to the smallest amounts and make minimum payments on larger loans. With time, the debts will begin to disappear.
It is advisable to consider the envelope system if you don’t like budgeting. Debit cards are ideal because you will just swipe the card and not see money getting off your hand. Write expenses on different envelopes and put cash in each envelope. Make sure you set aside funds for emergency. You may be tempted to cut on emergency savings if you are in debt. It is important to have at least $1,000 for emergencies because they can happen anytime.