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Debt – The Real Way To Escape It

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Debt is a horrible state of affairs, whichever way you look at it. While a small percentage of people never have to worry about money, the vast majority of us are living day to day and paycheck to paycheck. Relationships can crumble, and tensions can be frayed because of trying to count each individual penny, and it’s a very toxic environment to be in. It makes you feel that you cannot live your life properly because everything you earn goes towards paying off a bill that has been hanging over your head. And even people who are looking forward to a long life together may realize the errors of their overspending when they can’t borrow as much money as they want for a home or a similar purchase. There are so many little fixes floating around to help you curtail your spending habits, but is that addressing the root of the problem? There are many different ways to get out of debt, and there have been success stories, and there have been people who couldn’t cope with the pressure and filed for bankruptcy as a way to escape their troubles. And while there is no one definite way, here is a process to implement if you are starting from nothing.

Firstly, you need to take a long, hard look at what your debt consists of. How many credit cards you have, outstanding bills, child maintenance payments, etc. and start to prioritize them. The most important or urgent bills need to go right at the top and work your way down to other non-urgent ones, such as bank overdrafts or money borrowed from friends or family members. The reason to pay off the most important ones first is to avoid having people visit your home, or have your energy cut off, and so forth. For each important item of debt, you will need to contact each organization, and explain your situation and ask what the minimum amount you can pay off each month is right at this moment. It’s not about prolonging the debt for years to come, but merely to contact each company and to come clean with your financial problems. As soon as you can come to an agreement on the minimum you can pay off each month, you are 1) tackling the problem head-on, and 2) avoiding the worst-possible scenario i.e. having your energy cut off or being thrown out of your home.

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Once the urgent bills have been taken care of in the short-term, the most expensive non-urgent debts need to be paid off, one by one. When it comes to identifying the most expensive debts, be sure to take into account the interest rate for each one. The interest over a long period of time is very likely to add up, so look at paying off the most expensive on in total. Once the most expensive debt has been paid off, move onto the next one, and so on until each one has been paid off. The other option will depend on the amount of non-essential debt you have. There are debt consolidation loans available, where all of your debts can be placed under one umbrella, and you can just focus on paying that off. There are pros and cons to this, and again, this involves the amount of interest being charged on the repayments. So make sure to do the calculations first. Putting all of your debt into one package is very tempting because it can potentially be more manageable, but will it take you a lot longer to pay it off? Paying it off as soon as possible is the goal here. This is something that can take a while, but that could be down to your current spending habits, and this is the next step in cutting out your debt.

Identifying your spending habits might be the very thing that will get you out of debt sooner than you think. It is a big thing that we don’t think about, and this is because we think we’re already doing what we can to cut down on our spending. This is rarely the case. The best way to really identify your spending trends is to get a year’s worth of your bank statements and take the approach of what money lenders would do, and go through your statements with a fine-tooth comb and look for patterns. For example, if you take the same amount of cash out of an ATM once a week, what is this for? Is it something you do every day on the way to the office? And what is it for? If it’s to get a coffee and a croissant, do you class this as essential spending? You might think it’s essential because it helps perk you up in the morning, and we all need our caffeine. But can you swap your cappuccino and pain au raisin for a high-quality brand you can make at home and a frozen pain au raisin you can heat up in the oven before making the journey into work? Looking at the cost of those two items, if you bought them once a week, you’re potentially buying them around 50 times a year. If the cost of those two items was $5.10, 50 x 5.10 is 255. And if you bought those two items every day, then the cost would be even greater! Getting a sense of perspective on your outgoings is a vital approach to wiping your debt. And getting the mindset is so important, because you can start off with the best of intentions, but may find yourself sliding back into the old habits when the going gets tough. It’s not fair to say that you should go without certain comforts, but if you make sensible swaps, you can still live the life you lead while spending a lot less.

The other aspect of learning how to cut back on your outgoings is all about habit. We go to the store we’ve always gone to out of habit, and we buy the brands we’re used to out of habit. But are there stores where your favorite brands are cheaper? Or are there even brands where they are so expensive that they could amount to 15% of your weekly shopping bill? Habits like this could be a big way to save a lot of money, and while you may argue that it is a small part of your total shopping bill for the week, you need to think about how much it totals over a year. Again, it’s that sense of perspective. Even looking online, you may be able to buy items in bulk to qualify for a free home delivery, and it still works out cheaper than when you go to the store. And never underestimate the value of coupon hunting. There are great deals from CouponSherpa.com and other coupon websites that can get you a sizable discount. A lot of people think about bargain hunting as a waste of time, but it’s all about getting into the habit of things. Habits take around 21 days to form, remember that!

 

The other thing to really think about is not about the money aspect at all, it’s the emotional impact that living frugally can have on you. Emotionally, you need to make sure you have a support network or make sure you are supporting your partner or family member. It is a big challenge, and it’s about not going back into old habits because it’s easier or because you’ve hit a wall. Getting out of debt is a marathon, not a sprint. Looking at the end goal will keep you on track, and taking it one bit at a time is the right way to approach the problem. You may be surrounded by friends who go out to dinner all the time and ask you to join them, but if you are looking to pay a massive amount of debt, there are ways to bypass it, and saying no to that expensive dinner is the first step. But you shouldn’t deprive yourself either. You will be surprised as to how many people just use their credit cards to pay for their expensive dinner dates. There are ways around the social issues living frugally brings. Instead, having friends over for dinner will be a fraction of the cost or even something basic like a movie night or a board games night can be just as enjoyable as a night out. Granted, a night out will be a welcome change from being indoors constantly but do your research. If you have kids, a trip to the zoo or getting some fresh air may be what the doctor ordered!

Getting out of debt requires one thing for it to work, forward planning. The reason we all get into debt is because we don’t keep track of our spending, so by making a plan to pay off your debts and to plan your life for a definite period of time, it is the real way to escape the financial burden upon you.