How to make a get out of debt plan?
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By Bromwich+Smith Staff | 855 words | Reading Time: 4 minutes, 16 seconds | Date: 2022/06/07
Debt can feel overwhelming and intimidating but there are ways to start to tackle your debt. In this blog we will review eight helpful ways to guide you in reducing your debt. You're not alone and we believe these strategies will support you in creating a debt plan worksheet so that you conquer your debt and feel financially strong.
8 Ways to get out of debt:
- Gather your financial information
- Make a financial inventory
- Lower your interest rates
- Pay more than the minimum
- Increase your income
- Cut unnecessary spending
- Create a new budget
- Create an emergency fund
1. Gather your financial information
Before you start you will need to gather as much information about your finances as you can. Get copies of your credit reports to review and understand where your credit score lies.
Then, gather your most recent financial statements for each of your accounts and debts i.e.:
- Student loans
- Personal loans
- Auto loan
- Credit cards
- Store cards
2. Make a Financial Inventory
Once you have gathered your documents from step one, tally up your financial inventory. This may feel stressful, but it’s an essential part of any debt-busting action plan.
Then, come up with a set number of “months to financial freedom”—36 months, or 60 months, for example. Divide your total balance by the number of months you come up with to get a rough monthly payoff figure.
You’ll also need to calculate your take-home pay per month to determine if your goal is doable, or if you need to change your repayment period.
3. Lower Your Interest Rates
You’ve probably already noticed the one hitch in our monthly payoff plan above—interest keeps accruing as you pay your debts off. The longer your planned repayment period, the more interest you’ll pay. Depending on your interest rates and the amount you pay off each month, the interest you accrue could end up lengthening your repayment period substantially.
The solution to this conundrum is to reduce or eliminate your interest rate. Here are two ways you can do that.
Low-Interest Credit Cards
Look for a lower-interest credit card to replace your current card. If you qualify for a 0% introductory offer on balance transfers,shift your high-interest credit card balance.
Speak to your lender about reducing the interest rate on your existing car or personal loan. Home equity lines of credit usually have lower interest rates than regular loans, so if you own your own home, consider that option.
Debt consolidation loans — that wrap all your credit cards and various personal loans into one amount—could also help you save money. In addition to the potential monetary savings, one payment can be easier to track than several.
4. Pay More Than the Minimum
Paying just a little more than usual can help you get rid of debt faster—even if it’s just $5 a month over your minimum payment. Some mortgages carry prepayment penalties, but most credit cards don’t.
5. Increase Your Income
The most obvious way to bring home more cash is to ask your boss for a raise. Arrange a meeting and highlight your strengths and the good work you’ve been doing. If an immediate raise isn’t possible, ask your manager what you need to do to earn a better hourly rate or a better salary in the future.
Side gigs also generate extra money —and they don’t have to be second jobs. Dog walking, cleaning, babysitting, Uber driving, and odd jobs can all make you a little more flush.
6. Cut Unnecessary Spending
Spending less can help you balance a lower income—and we don’t mean skipping your monety coffee. Review any monthly subscription fees to determine if you really need the subscription at all. Cut restaurant meals down to once a week, or once a month. Swap more expensive brand-name groceries for store-brand items.
7. Create a New Budget
A budget plan can help you pay off your debt faster, and it can also make you feel more financially secure. Write down what you bring home every month and then list your recurring monthly bills—rent, insurance, cable, childcare, public transport, and so forth. Include your monthly debt repayment plan amount and review how much is left.
Then, create a realistic budget and try to stick to it.
8. Create an Emergency Fund
Creating an emergency fund, however small, can be very effective in lessening the stress of financial challenges. The money in your savings account can also help tide you over if you lose your job or run into financial difficulties in the future.
Many financial experts suggest that people keep six months’ worth of expenses in an emergency fund. If that sounds like a lot, do try to save something, even if it’s not the recommended amount. Over time, your efforts will pay off and you’ll build yourself a nice, little nest egg.
Escaping from debt is tough, but it’s not impossible. If you’re careful, committed, and realistic, you’ll be free sooner than you think.
If you are facing overwhelming debt, remember that you are not alone. Bromwich+Smith has a number of debt relief strategies to help you regain control of your finances and get your life back on track. Reach out today for a free, confidential, no obligation consultation. Bromwich+Smith’s Debt Relief Specialists are available by phone at 1.855.884.9243, or request a call back at contact us page. We want to see you flourish!