You may have a pile of debt and you have resigned yourself to the notion that you will be paying it off for years and years. As your debt grows and starts to compete with your basic living expenses, you know you need to do something, but may not be sure where to start. With the right advice and day-to-day strategies, you can emerge from debt or at least reduce it significantly. Like a weight loss program or taking on a new course of study, change won’t be easy in the beginning, but it is likely to pay off and help you achieve new confidence and an improved life.
The Two-Pronged Approach
To get rid of the debt you already have, it is helpful to take this two-pronged approach which may seem like common sense but is important to keep in mind and apply on a consistent basis. You need to correct the spending problem that caused the debt in the first place. You were either not making enough money or spending too much or both. Attack both sides of the problem at once if you want to get out of debt fast.
First of all, look at your expenses to see where the money is going. Make a list of necessary expenses and extraneous expenses. Write down the minimum of how much you need to spend per month to live and compare it to what you are bringing home in each pay check. You are likely to see a shortfall that is causing you to continually borrow money. The trick is to close the gap between those two factors. You either need to find a way to make more money or cut expenses or combination of the two. The quickest fix it to cut your expenses. You aren’t required to eliminate all the “extras”, but constantly look for ways, from clipping coupons to happy hour, to make what you spend go further.
Itemizing Your Debts
Keep track of exactly how much you owe, the interest rate and what the repayment schedule is. Some people like to attack each debt individually. You can arrange them by the lowest to the highest amount and get rid of the smallest ones first so you have a feeling of accomplishment. Others prefer to go after the debts that have the highest interest rate first to save more money. Whichever approach you take, it is important to have a positive, proactive strategy for dealing with debt.
Take Care of the Future
While working your way out of debt, you need to remember to plan for you future at the same time. One of the ways to do this is to participate in your company’s 401(k) plan. This deduction is taken straight out of your check, and if you don’t see it, chances are you won’t miss it too much. Once done, figure out how you want to invest your retirement funds. Some 401(k) plans allow you to choose which fund you want to use for your investments. If so, do your research online about the funds and keep on top of the current economic climate. Many companies, like Fisher Investments, review global and national news that could affect you future financial decision.
An Ounce of Prevention
It is essential that while you are chipping away at your debt you to not backslide into bad habits. Always have at least $500 to $1,000 in an emergency fund so you don’t have to run to the bank and ask for more money or get more cash from your credit card. Think about debt as a crutch you have decided not to use anymore and a poor way of coping with bad financial habits. Remember the first step is always the hardest but if you stick to your plan, you’ll find that facing your debt, figuring out a workable plan, and executing it can be a personal triumph.