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Saturday, July 20, 2024

4 Ways to Get Out of Debt Fast (+ mistakes to avoid)

Cut up your credit cards

Credit cards aren’t inherently evil like some people think. They can be a useful tool, but right now they’re no good to you if you’re in unmanageable debt.

While you’re clearing debt, the number one mistake you want to avoid is adding to that debt.

Some people get into the mentality that the more they pay off, the more they can put right back on that credit card. Don’t do this! You’re just making it so much harder for yourself.

Instead, you need to say goodbye to those credit cards and create a spending plan that does not involve relying on them. 

Create a practical, sustainable budget

If credit is a necessary part of your day-to-day budget, that needs to stop right here. 

It’s definitely easier said than done if you’re used to relying on debt, but with a practical budget, you can start to claw back some control of your money.

Step one in creating a budget is to do a full look at your income and outgoings. What cash do you have to work with? What are you spending and where can you cut back comfortably?

There are all sorts of budgets out there you can try. I like the 50/30/20 one, which allocates 50% of your income to needs (e.g. rent, insurance, groceries), 30% to wants (fun stuff, yes you can still have fun on a budget). And then there’s 20% to savings (retirement accounts, vacation fund). 

If that one doesn’t work for you, find one that does. Remember, for a budget method to work, it needs to be right for you. It needs to be sustainable long-term. 

That means you don’t want a budget that forces you to give up everything you love, because, let’s face it, you won’t stick to it. 

Should You Consolidate Your Debt?

At some point, you’ve probably considered consolidating your debt. There are a few benefits to this:

  • It makes managing all your debts simpler
  • You can save on interest

If you have several credit cards or personal loans with high-interest rates, it can make sense to take out new finance, pay off all your debts and leave yourself with just one debt to manage. 

But there are two key things to remember. 

Consolidating your debt is only worth it if you can save money on interest. Moving to a loan with higher interest rates is going to leave you in a worse position, even if it makes managing it simpler. 

Also remember, taking out more finance doesn’t mean you can now spend more. Don’t make the same mistake some people do when they take out a brand new loan, pay off debts and then dump another big purchase on a credit card.

Debt consolidation loans are yet another debt, remember. It’s not a ticket out of debt unless you’re serious about clearing it and staying out of debt.

Avoid These Mistakes When Paying Off Debt

Want to clear debt and stay out of it? Make sure you avoid these common mistakes.

1. Keeping the same old habits

If your spending plan involves credit cards, payday loans, and relying on credit…you guessed it. That needs to stop. You can’t stick with the same old habits because it’ll be so much harder to dig yourself out of debt. 

Things need to change. A debt repayment strategy is only part of the work. You need a practical budget and a sustainable spending plan. Changing habits is never easy and there will be an adjustment period, but it’s worth it to be free from debt. 

2. Not asking for help

Most people try to go it alone. Maybe that’s because of the “I got myself into this” mindset or they’re a bit embarrassed. Whatever it is, you’re not doing yourself any favors.

If you have unmanageable debt, one of your first calls should be to your banks or lenders to try and reduce that interest rate. This is a simple way to get help and if they say yes, you’re one step ahead than you were. 

Another way you can get help is to call a credit counseling service and get some advice. Credit counselors are trained to offer debt management programs and advice that can make all the difference. They can also help you set up a budget to avoid future debt.

3. Making only the minimum payments

Making only the minimum payments on all your debts is a common mistake people make because who wants to pay more than they need to?

The truth is, you’re actually paying more by avoiding those higher payments each month. All it does is prolong the debt and increase the amount of interest you need to pay. 

Try to make more than the minimum payments on at least one of your debts. You could save so much over the course of your loan in interest alone!

A life of debt doesn’t have to be your reality. If it always feels like you’re clawing your way through debt, there is a light at the end of the tunnel. 

But don’t do what so many people do and try to ignore debt. The fastest way to get rid of it is to face it head-on, come up with a strategy to pay it off, and have a budget to avoid it in the future. 

FAQs About How to Get Out of Debt Fast

What happens if I can’t pay my debt?

In some cases, your debt review repayment may be subject to legal action from your creditors, or you may have your debt review court order completely terminated. In the event that you can’t pay your monthly debt installment or miss one payment, additional legal fees may also be added.

Can I get a job while under debt review?

Debt review is a voluntary process that allows you to get help with your finances and debt problems in order to avoid bankruptcy. It’s important to understand that debt review won’t impact your employment in any way, so if you’re under debt review, you’ll still be able to get a job if needed.

Do employers know if you’re in debt?

Credit checks are a common part of the hiring process. Employers use credit report information to verify their job candidates’ identity, and they may also look for signs of excessive debt or past financial mismanagement.

In fact, many employers perform credit checks on all new hires even for positions that don’t involve handling money or financial transactions. Some employers feel that this practice can help them avoid hiring people who have a history of financial problems and might bring those issues with them to work.

Let’s not leave it there though. Debt repayment should be just one part of your financial plan. 

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