A mountain of debt is nothing to scoff at. It’s a huge financial burden to have a 30-year mortgage, car payments, and a few short-term loans, e.g. payday loans, title loans, etc., demanding attention every month. If there was ever anything that made you feel like you never see your paycheck, it’s paying off debts.
For that reason, many are looking to dig themselves out of the mountain of debt that builds up well above their heads. The following are 7 tools that have been proven effective at helping families get out of debt.
First, if you can afford it, pay more than the minimum payment each month. Every extra penny you put towards paying off your loans brings the end of your debt a little closer. For a short-term loan, you can decrease the term of the loan by a month or two. For a mortgage, you could reduce the term by a year or two. The latter would take considerable effort, but if you worked efficiently through the following tips, you could make it happen.
Second, make more money every month. Easier said than done right? Digging out of a sticky situation is never easy though. It requires effort. The best thing about this effort is that it improves your overall financial situation for the day you finally do dig yourself out. You can make more money by seeking a raise, promotion, alternative or additional work, or starting your own business. If you don’t go for the raise/promotion, this may mean that you put in more hours at work with the other options. A nice alternative to the extra hours is when a spouse agrees to work as well (assuming that they’re not already). Sharing the load can help get you out of debt quickly.
Third, spend less in your day-to-day life. Reduce your food expenditures by cooking at home more. Reduce your grocery bills by planning meals around coupons. Cut down on your vehicle maintenance payments with carpooling, public transportation, and selling an extra car (that you could live without). Sharing gas, using public vehicles, or getting rid of an extra car each come with significant financial gains to your budget. You spend more every month on driving yourself to work every day than you’d expect. There’s something in every aspect of your life that you could label as excess. Find those points and replace them with cheaper alternatives or save all the money by cutting them completely. You’ll save a ton of money that you could put toward debt payments this way.
Fourth, avoid replacing your debt with more debt. Taking out a second loan to pay off your first one just puts you in a hole for longer.
Fifth, refinance a loan if at all possible. After a long period of good behavior, you can approach your lender for some leniency. They can take a look at your loan again to reevaluate the situation. If you meet their requirements, you can get your interest rate reduced. In terms of a mortgage, that could mean several thousand dollars less you owe the bank. Every scoop your lender can dig off for you is a win. Seek a refinance when it’s possible.
Sixth, put a little away every month into a saving’s account. Even $20 a month will go a long ways in a year. Every little bit helps. Put away money as a buffer for upcoming payments and as a safeguard for your family. If anything were to happen to your job, you would be immediately hard put to pay off your debts, otherwise your lender could walk in and take back the value of your loan. In some cases this could mean your home, leaving you penniless, homeless, and a hundred thousand dollars poorer with nothing to show for it.
Seventh, make a budget. If you have one already, reevaluate it. Once it’s built, don’t spend a penny more for anything that’s not enumerated in the budget. Make the budget a law that you live by. If you do this, you can keep your spending to predictable amount, allowing you to save more money to pay off your bills.
As you apply these seven principles, you’ll be able to chip away a bit more at your mountain of debt. Become proactive in your debt management. The sooner you do, the sooner you can declare yourself financially independent. Once you reach that point, you can finally reap the benefits of a healthy paycheck.