Nowadays, debt seems to just be one of those things that is seen as 'the norm'.
It's normal to live a life on credit. It's normal to have credit card debts, loans, finance agreements for furniture and cars on finance.
But if it's so normal, why are so many of us wanting to know how to get out of debt?
You want a debt free future
It makes sense.
You don't want to be heading into retirement, while owing a load of money.
Unless you have a huge pension coming your way, how likely is it that you'll be able to keep up with your repayments as well as your bills?
And debts don't go away.
It's highly unlikely that you want to have that hanging over your head when you want to enjoy your retirement.
How did you get into debt?
In order to know how to get out of debt, you need to think about how you got into debt in the first place. People get into debt because they spend more than they earn, and need to borrow money to get out of it.
Prior to pin-pointing where the issue lies, it's easy to think nothing of ordering a takeaway, or signing up to repayments you can't afford, or going on a spending spree.
Who's fault is it?
What's important to understand, though, is that getting into debt isn't about being irresponsible. I don't think people are educated enough on the dangers of credit, and the importance of budgeting our money correctly.
Not only that, but the word 'credit' alone implies some sort of reward, when a credit card is the exact opposite. It should be called a ‘debt’ card. With such positive terminology, it's no wonder that so many people subconsciously view a credit card as free money.
The power of Compounding
Compounding doesn't just work on savings.
While you might have had every intention of paying your credit card bill in full, you likely found it easier to pay the minimum payment, for fear of finding yourself short of cash later in the month.
Which means when the bill comes again next month, you've attracted an interest charge. You now owe more money than you initially borrowed.
Also, because you forgot about something that needed to be paid, you're short of money again. Thank goodness you have a credit card to get you out of a tight spot.
Problem is, this means you now owe more money, which will attract more interest when you don't pay the full balance next month. And the interest also attracts interest.
Should I consolidate My debts?
In my opinion? No.
You need to get out of debt, and you're not going to be able to do that until you realise that you're overspending.
If you consolidate your debts into a loan with one affordable monthly payment, and you are still living beyond your means, your debt will still grow.
Utilising the credit available to you to and falling further into the trap.
So how do I clear my debt?
Track Your Spending
By tracking your spending, it's clear to see where you might be overspending, or spending money unnecessarily.
Perhaps you spend too much on takeaways, or you have several outgoings that aren't essential, such as a satellite TV subscription.
Or maybe you're an emotional spender and tend to spend money as a means of making yourself feel better.
Track your spending for a month, so you can see where ALL of your money is going.
Include your bills, and list everything else in categories such as food, eating out, health and beauty, tobacco, alcohol, household and garden purchases, etc. As you track your spending you'll be able to define your categories more clearly, but don't make the list too complicated.
Now that you can see where your money is going, it's easy to see where it's possible to cut back. As Dave Ramsey says in The Total Money Makeover, cut out everything except the basics. You can't get out of debt while maintaining the lifestyle you currently have!Take a look at the things you could cut back on, and ways to save on your food shopping.
Make a Budget
After cutting back and seeing what you need to plan for, you can now budget for everything else.
Your bills will generally be fixed expenses. If you haven't already, one way of doing this would be to set up a direct debit with a regular monthly payment to help you budget better.
Your minimum debt repayments (and any extra you've freed up from cutting out non-essential spending) need to be included in your budget, too.
In addition to your bills, there are other things that you perhaps haven't considered you need to budget for, which once included, will prevent you from overspending. See an article about making a budget here.
For help in drawing up a budget, budgetingisachallenge.com has some great resources including a free budgeting course.
Free Debt Tracker
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Talk to your creditors
No matter how scary it might be, once you talk to your creditors you'll feel a huge weight lifted off your shoulders.
Because you're now the one taking control. It's empowering, trust me.
Your creditors want their money back. Even if you can only afford to pay them £5 a month, it's £5 they wouldn't otherwise be getting. And as you begin to pay your debt off, the effect will compound positively.
Increase Your Income
With the evolution of the internet, there are so many ways you can increase your income nowadays. From selling things from within your home after a declutter, to doing freelance work part-time online, there's plenty of resources available to help you.
Alternatively, consider getting a part-time job. Waitressing is sociable and attracts tips as well as a wage. Find something that you know you'll enjoy. That way, you'll be getting paid at the same time as not spending your money.
With some planning, and putting steps in place, you can get out of debt. It's important to know that it won't happen overnight. But, just knowing that you're taking control of your financial situation and your future, should be enough to give you the boost that you need to get out of debt.
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