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Simple Ways To Get Out Of Debt

Simple Ways To Get Out Of Debt

Getting out of debt provides multiple benefits from reducing stress to creating new financial opportunities. There isn't one single best solution to eliminate excessive debt since you can use multiple techniques and pick the ones which work best for you and your family. Many consumers are drowning in debt resulting from student loans, underwater mortgages, and credit card debt which on average is $8,000 per person. Let's look at some of the simplest ways to get out of debt.

Create a Budget

Creating a budget is absolutely necessary for any consumer looking to reduce their debt to a manageable level. It's hard to figure out where you're going if you don't know where you've been. Take steps to develop a complete financial picture of what money is coming in and what money is going out. Create a list of all income and expenses and then prioritize the most important to the least important using numbers one through five. This basic analysis will allow you to see concrete evidence of how you're spending your money and if you're spending it wisely. Once you know what your money is doing, you can determine how to better allocate your limited financial resources and cut wasteful spending.

Cut Wasteful Spending

It is virtually guaranteed that everyone everywhere can cut back financially. It's not that having a latte in the morning on the way to work or going out to dinner a few times a week is financially irresponsible. It's more a matter of when consumers are looking to cut back on expenses to reduce debt and increase savings or investing, you only have so much money and you want to use it wisely. If you have no debt, a large emergency reserve fund and are fully invested in your company's 401(k) then yeah, buy a latte five days a week. If however, you're looking to make your life better by reducing stress and accomplishing goals then it will be necessary to eliminate wasteful spending.

Generate Additional Income

Sometimes cutting back on unnecessary purchases or indulgences may not be enough to get out of debt. At least on a temporary basis, it may be necessary to get a part-time job so extra payments can be made to pay off credit cards or get caught up on your auto loan or mortgage. Having garage sales can also be helpful because it turns personal possessions, which likely haven't been used recently, into money. This may also have the benefit of clearing out clutter or eliminating the need to rent a personal storage space. The sooner you get back on track financially, the sooner you can quit your temporary job and go back to enjoying life.

Consolidate Excessive Debt

Like most problems in life, there are many different ways to arrive at the same solution but some are better than others. Consolidating debt is the best way to get out of debt quickly. This is because it takes multiple payments from different lenders at varying interest rates and combines them into a single low interest payment. You can use balance transfer checks that offer 0% interest for 12 months to consolidate five credit card payments into one. This means your monthly credit card payment will be applied 100% to principal paying down your debt faster. You can also use a home equity line of credit which has a similar effect but you get the benefit of tax-deductible mortgage interest. If you can't use a debt consolidation option then pay off your highest interest rate loans first and work down from there.

Increase Your Savings

These are some of the simple ways to get out of debt but that is only half of the solution. Once you're out of debt you need to build an emergency cash fund and increase your monthly savings to prevent it from happening in the future. Many people tackle debt the same way they tackle weight. They diet for a month, drop a bunch of weight but then add it right back. The only way you can stay out of debt is to modify your behavior and make lifestyle changes. Preparing for the unexpected such as a medical payment or car repair is one of the primary reasons to increase your savings. That way if something happens you can write a check instead of using a credit card.

Image by: Felix Meyer