Debt can be stressful. The longer you put off making agreed-upon repayments, the more your situation will worsen as interest rates cause your debt levels to rise. Sadly, eliminating debt doesn’t happen overnight, especially if you’re earning a low income. The good news is that it’s not the end of the world. Here are a few steps that you can take to relieve your financial burden and not only live a debt-free life but also achieve your long-term financial goals.
1. List down your debts
It might be daunting to face the music and total up all that you owe, but it is the only way to take positive action to clear your debts and make better financial decisions for a less stressful future. Write down every debt you have – including who you owe, how much you owe them, and the interest rate you’re paying on the debt. Work out which debts are your priority and try to pay them off first. Rent or mortgage loans, utility bills, and vehicle loans are payments that should be high on your list so that you don’t miss out on the repayment dates and struggle with overdue later. Once you get the total figure, you can work towards a budget that can help you clear it.
2. Consider a debt consolidation loan
Consolidating debt is combining your one-too-many loans into a single new loan which will help you manage your repayment in one go rather than tackling various debts. This means you will only deal with one lender and usually at a lower interest rate – it’s a quicker and hassle-free way to clear your debt. Reach out to a good refinance broker who can help you revise your loan terms and find a better interest rate to aid your debt reduction process.
Additionally, if you’re a homeowner, you can also talk to your home loan mortgage broker to help you minimise your financial burden and come up with better repayment terms that suit your current financial situation through refinancing. Consolidating debt doesn’t magically get rid of all your debt worries but with the right planning and strategy, it can help.
3. Reach out to your creditors
Facing the people you owe money to can be scary but you should not let it overwhelm you. Many financial lenders and companies offer financial assistance for those who go through financial hardships. Be honest with them about your current situation and convey your willingness to find a repayment solution, and they will be more than willing to negotiate with you.
If you have good payment histories, you can try requesting a lower interest rate as higher interest rates keep you in debt longer because a large chunk of your repayment goes towards the monthly interest charge and not towards your actual balance.
4. Budget wisely
Once your debts are consolidated, you need to create a budget to work out how much you can afford to pay and how you’re planning to do it. If you have more money going out than coming in, you have to identify which expenses you need to cut or reduce to reach your financial goals. However, you have to remember to be realistic with your budgeting – an unrealistic budget is only going to prolong your debt repayment.
On top of budgeting, it’s always better to save for a rainy day than scramble to find money when you need it. Any extra surplus that you have at the end of each week or month should be put aside in an emergency fund. Creating an emergency fund may seem counterintuitive as you could be using that money to pay off your debts instead of putting it into a savings account. However, it can help save you from creating more debt. The emergency fund will act as your safety net to cover any unexpected expenses or debts that you’ve missed out on.
5. Improve your money management skills
Addressing the reason why you got into debt in the first place will help you understand which of your habits had put you in the position of bad debt. From there, you can make better decisions on how to avoid debt in the future by not making those same mistakes again.
Setting clear financial goals and organising your finances – through apps or whatever tools that work for you – will help you keep track of where your money is going and be accountable for your expenditure. Other than that, sticking to a budget and being more mindful of your spending is a critical part of smarter financial management and are better habits to live by – for life.
Stop accumulating debt
In the end, these are only tips to help you reduce your debt – a non-exhaustive guideline of good financial behaviour to help you live a debt-free life. What matters is that you slowly stop accumulating debt over time. Reduce your temptation to create more debt by taking a break from your credit cards or even freezing your credit. The goal is to be more mindful of your spending and save more.
Creating a plan to eliminate debt will give you a clear timeline of what you need to pay and when. It will also help you budget better so that you can grow your savings in the long run. However, if your debts have become too stressful to handle and you’re feeling stuck, you may want to consider getting help and advice from a professional mortgage loan broker to lead a debt-free life and attain your financial goals.