Escaping debt isn’t simple, particularly when you have a cash tree developing on your terrace. At times it takes all you have to stay aware of the month-to-month bills and keep for later, not to pay the base regularly scheduled installments on your Mastercard and advances.
The vast majority of people have debts. Debt is not necessarily bad if the debt is an instrument to achieve specific purposes, such as buying a home of your own. But if you lose control, this can leave you in a bind.
Your debt is a problem if you cannot reasonably pay your expenses, save something for the future and, at the same time, continue paying the debt. Having too many debts not only limits your financial options but also costs you money because your credit score drops. As a result, you pay more interest on your loans and credit cards.
First of all, you should honestly evaluate your situation and formulate a plan before sending an extra dollar to a creditor.
Make a list of your monthly expenses and take out the balance of each of your debts. Keep a record of the total of both amounts: This will be the basis for determining your monthly budget. With each debt obligation, make a list of the amount you owe, the minimum monthly payment, and the interest rate of each one.
Then, get the free annual copy of each of your credit reports and compare the information they give you with the one you already collected. You may find debts that you forgot or that the reports include obligations you do not have.
Claim any errors you find in your credit reports. You can make your claim for free to correct errors, but there are few benefits in hiring an outside company to do
Set the priorities of your debts
Once you have established the scope of your debts, trace the order in which you want to focus on them.
Your priority should be to pay consumer debts, such as credit cards, medical bills, and personal loans; after that is when you should consider paying any outstanding invoices you have. Unlike when you pay consumer debts, covering billing accounts will not improve your credit score.
Student loans, car loans, and mortgages should be last on your list because interest rates are typically reasonable and, often, fixed.
Evaluate your resources
The more you can cut your monthly expenses, the more money you will have to pay off debts. Each extra dollar you spend on your debt will reduce the total amount of interest you pay each month.
Look for ways to reduce your expenses. Could you save money by preparing your lunch for work instead of buying it? Could you reduce the costs of cable, telephone, and internet?
Many times, there are ways to reduce your payments without risking your credit.
If you have medical bills, ask your doctor if you qualify for a public charity program or financial assistance programs that may reduce your total amount. If the medical bill is already in the hands of a collection agency, ask your doctor to recover it and get a payment plan directly with him.
Consider consolidating or refinancing your student loan to lower monthly payments and release more money to pay off your consumer debt.
Place your plan in action
You can get out of debt faster by paying first those with the highest interest rate. If you need a psychological boost to start, pay the lowest balance first.
Already paid a debt, direct your money to the next. The total amount of interest you pay each month will decrease with each account you pay, and more money will be available for the other charges.
Continue like this until all consumer debts disappear.
The payment of outstanding debts is only part of this task. You can end up in the same place again if you aren’t diligent. Preventing that requires maintaining a current budget – one that covers your current bills, pays outstanding debts and saves something for your retirement.
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