Factors to Consider to Be Debt Free
Most people are in debt nowadays. This is form of medical debt, mortgage, credit card debt, student loan 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, don’t let your debt to control you. Instead you need to come up with a strategy to help you get out of debt. Below are tricks to use to be debt free.
Start by confronting your debt. It can be scary to think of the debt you are in. However, ignoring the problem does not mean that it will go away but will instead make things worse. You should tally all the debt you have such as car loans, credit card debt, student loans, mortgage and medical debt. This will help you to know the whole amount of debt you are in. Consider your income with the debt. You should calculate the debt to income ratio. You will be to know clearly the debt you have. Having knowledge of the problem will help you find a solution.
It is important to have a budget. Write down your monthly expenses like utilities, food, mortgage, rent, car payment and phone bill. 50% of the budget needs to go towards important expenses such as housing, 20% for debt repayment and savings and 30% for wants. You need to have limits on what to spend for fun and stick to it.
You should avoid habits that are expensive. You will get space in your budget. Choose to cut down on eating out to pay your student loan debt.
It is important to pay more than the minimum. By losing your expensive hobbies, it will be easy to pay more them the minimum. You should approach debts just like bills. It is advisable you pay your debt before anything else. When you have extra cash, you need to direct it towards your debt instead of shopping and drinks.
Consider the snowball method. This means you visit all the debt you owe from the smallest to the largest. Put all the excess money to the smallest amounts and make minimum payments on larger loans. After some time the debts will start disappearing.
It is advisable to consider the envelope system if you don’t like budgeting. Debit cards are the best because you swipe the card meaning you don’t see the cash getting out of your hand. You should write expenses on every envelope and put the cash. It is important to have emergency funds. You may be tempted to cut on emergency savings if you are in debt. However, you can never tell when an emergency can happen save at least $1,000.