Many people wonder how to get out of debt but have no idea how to start dealing with the situation and solve their financial backlogs.
This paralysis generates anguish and sometimes only worsens the scenario – the outstanding debts accumulate, as the interest charges. The good news is that with determination and a good financial plan, you can get rid of debt.
In this post, we will take the walkthrough for those who want to get rid of outstanding debts and achieve financial freedom. Want to find out how to get out of debt? Check out these 7 steps!
1. List all debts
The first step out of debt is to know what your finances really are. It is therefore essential to list all debts you have, however small.
Know exactly how much you owe, how long ago and to whom. This is indispensable for defining which debts need to be paid off first. Also list the companies you should contact to renegotiate what you owe.
2. Try renegotiations
Once you have listed all the debts, it is time to take action: contact the creditors and, if appropriate, propose a renegotiation of outstanding amounts.
Keep in mind that just as you have an interest in paying, companies also want to receive. So prepare a debt settlement proposal considering how much you can afford to pay off what you owe.
In some cases, it may be worth selling some good to pay the cash debt and get a full discount.
3. Prioritize higher interest debts
Another important step for those who want to get out of debt is to know that you need to prioritize debts that charge higher interest.
If you are due on overdraft or credit card, for example, prioritize the repayment of these debts, which charge some of the highest interest rates on the market. Depending on the situation, it may be worth taking a loan with competitive rates to pay off expensive debts.
4. Write down all inputs and outputs
Making financial control a habit is another precaution for those who want to be debt free. In this sense, it is important to record all domestic budget entries and exits. So you find out not only how much money you are spending, but also in which categories the main expenses are.
There are several ways to do financial management. You can use applications, spreadsheets or even notebook and pen.
Regardless of the method adopted, it is essential to record even the smallest expenses, specifying the amount and category in which the expense and / or income is entered. This makes it easier to know if you are spending in areas that are really important to you and your family.
5. Involve family members
Getting out of debt is a mission that should involve the whole family. In order to achieve the long-awaited financial freedom, it is important that all household members work to keep spending under control by doing their part to consume consciously.
Paying off debts is a process that will require certain sacrifices from everyone. It is therefore essential to be transparent. Make sure family members know what the real state of home finances is and what costs should be reduced in the budget.
Changing habits is much easier when household members share the goal of paying off outstanding debts and working to keep up with finances.
6. Don’t Make New Debts
Anyone who wants to get out of the red should arrange their finances so as to avoid making new debts while paying off the old ones. This requires changing consumption habits.
In order not to see yourself owed again, it is essential to live up to the income you receive, without falling into the trap of spending more than you earn and ending a debt balance.
Knowing what your financial reality is and especially adapting to it is an important part of the process of dealing with money healthily. Even small routine adjustments – such as cooking at home rather than dining out every day – make a difference at the end of the month.
7. How to get out of debt by cutting costs and setting spending goals
Finally, to maintain financial control and get out of debt, cutting costs is another important step. Analyze your budget carefully and start cutting through nonessential areas such as clothing, beauty, leisure, etc. Even consumer bills like light, water and gas can be reduced with some changes in habits.
To manage your finances wisely, use planning to your advantage. Before the month even begins, set spending goals for each category of your budget. Start with essential and fixed expenses such as rent or health insurance.
Defining how much you can spend on each category is one way to ensure your income is being used in priority areas for you and your family.
A point of attention: In addition to setting spending goals, it is important to track household spending throughout the month. This ensures that you are able to stay within what has been determined.
If you extrapolate spending in one category, try compensating in another to balance your budget and not end the month in red.
Now that you know how to get out of debt with these 7 steps, it’s time to take action to organize your life and achieve the long-awaited financial independence once and for all.
List all debts, renegotiate with your creditors and make the most expensive debts first. Recording inflows and outflows, engaging family members and cutting costs are other important attitudes to keep finances up to date.
Financial education is not something you learn overnight. It takes planning and study. In some cases, it is best to seek expert help to organize finances and change the way you handle your money.
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