Falling from debt to debt is not a quick or easy process, but it is doable.
Prepare for a debt-free life
It starts with changing the way you think about debt. If you want to get out of debt and stay out, these are some things you need to do.
01 Face your Debt
Start by finding out where your debt is. One of the fastest ways is to calculate your debt-to-income ratio, a number that tells you how much of your income goes toward paying down debt. High debt-to-income ratios indicate that you are inundated with debt. You may not need a calculator to tell you this, but insight into the facts and figures will help you come to terms with how much debt you really have.
02 Stop taking on new debt
One of the hardest breaks habits will be the habit of using your credit cards. If you have used the loan for a long time, you must be accustomed to the convenience of delaying payment and buying things that you do not have money to pay. If you want to become free, you need to stop taking on new debt and start living solely on your own income.
03 Start a budget
A budget is simply a plan to spend your money. If you don’t have a plan to spend, you can throw your money in the wind. You may feel like you are managing your money well without a budget, but you probably wouldn’t be in debt if that were true. A budget will help you use your income, find leaks in spending, and come up with a plan to repay your debt. The sooner you make the budget, the better your wallet will feel.
04 Live within your means
Many people work in debt because they spend more money than they really bring. Theoretically, this sounds impossible, but if you use the factors in credit cards and loans as spending instruments, you will see how easy it is to spend to exceed your monthly income.
If you want to pay off your debt, you’ll have to cut spending below income. This might mean reducing some deposits, but you’d be surprised how quickly and easily you can adjust your lifestyle.
05 Avoid masking your need
It’s easy to make sure you need to buy a new TV or need a vacation. The truth is, there are not so many real needs in life. You need food, shelter, clothing, transportation and things like that. You want a steak, a nice house in the suburbs, designer labels, a luxury car and so on.
Part of living within your means involves saying no to things by some of those nice-to-haves that stand in the way of your lifeless debt. It also means avoiding the tendency to call something when it is really just a desire.