Dealing with debt can be very
difficult – doubly so when debt collectors are calling your phone at all hours
of the day. The problem is that managing money is not a skill that’s taught in
schools today – people are instead expected to figure out how to manage their
own finances with little experience. It is no surprise that Americans become
riddled with debt, but the good news is that digging yourself out of debt
becomes manageable with a few easy steps. To help us understand the most
effective strategies, experts from Freedom Debt Relief reviews steps that have
helped people rid themselves of debt.
Evaluate Existing Debt
Most people who have enormous amounts
of outstanding debt usually have it distributed across a number of different
sources. The most valuable first step is to understand your debt – who you owe
money to and how much. Freedom Debt Relief reviews that writing down all
sources of debt is one of the most important first steps that can be taken to
tackle debt. Make sure to list out the important attributes of debt:
outstanding balance, APR (interest rate), and minimum payments. Once all your
debt is on paper with attributes filled out (make sure to copy interest rates
exactly as they appear in your debt), you can then begin to understand the
minimum payment needed each month across all your debts in order to not incur
extra costs.
The most important step here is to
understand how your debt will accumulate over time for each line of debt. It’s
recommended to pay each monthly amount owed in full, but in the event this
cannot be done, paying off the debt with the highest interest rate is the most
important step – as debt with higher interest rate will spiral out of control
the fastest.
Make a Payment Plan
Once you know exactly how much you
owe, it’s essential to create a plan to tackle the debt. The creation of a
payment plan takes two factors into account: the minimum payment amount for
debt and the maximum amount of money you can contribute each month to payments.
From there, you need to assess how much money you can feasibly contribute
towards paying off debt. Keep in mind that paying just the minimum amount for
debt will mean that the process of paying off debt will continue for a very
long time. In the long term, you will actually save money by paying off debt as
quickly as possible.
To make a rough estimate of how long
you need to stick by your plan, you can use the following equation:
Debt / Monthly Repayment = Number of Months until you are debt
free
Pay off Highest APR Debts First
When it comes paying off debts, make
sure to try and pay off the highest APR debts first. To do this, make the
minimum payment possible for all debts except for the one with the highest rate.
This strategy allows you to focus on the debt with the largest impact first,
which means paying off debt will only become easier over time. Freedom Debt Relief reviews that the steps listed above are steps that are available to
everybody and should be the bare minimum when it comes to tackling debt. Yes –
while it is possible to refinance some debt or open up a new credit card with
0% APR, those avenues may not necessarily be open for everybody. When it comes
to managing debt, there is no magic bullet or easy way out, short of a
miraculous event like winning the lottery – not an event you want to bet on
happening. Eliminating debt comes down to strict financial discipline and
planning – the process is not easy but it is something that everybody can do if
they maintain discipline and stick to a plan. The good news is that once one
debt is paid off, it makes more money available to pay off the next debt.
Assuming that the same amount of money is spent each month to pay off debts,
the idea of snowballing will make paying off the next debt faster.
Reduce Unnecessary Expenses
There are additional steps that can
be taken to further reduce debt – but it can require living a very frugal
lifestyle, change in mindset, or outside help. One of the best ways to free up
more money to pay off debt is to reduce or curb unnecessary expenses. The
experts at Freedom Debt Relief reviews the importance of combing through
monthly expenses, in order to understand how money is being spend and where
expenses can be cut. More importantly, reviewing expenses can give insight on
expenses that are no longer valid – such as subscriptions to old services or
expensive payments that could be renegotiated or reduced. One of the largest
expenses is associated with vehicles – nicer cars have a price tag that is
often not readily apparent: higher insurance premiums, lower gas mileage, or
most expensive repair costs all make for a higher cost of ownership. In the
event that your vehicle is causing too much of a train on your finances,
consider trading it in for a less expensive model – which makes your monthly
expenses lower and gives you a chunk of cash that can be used to pay off debt.
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