Have you decided to get out of debt but don’t know where to start? There are some strategies you can follow to achieve your goal.
The first step in managing your personal finances and creating wellness is budgeting.
In addition to your monthly income, you should know what your expenses are , for example, rent, food, transportation, services, outings or purchases.
Once you are clear about your budget, you will be able to know how much money you have per month to save and to pay debts. Some recommendations that you should keep in mind are the following:
Pay more than the minimum. When you pay the minimum on a credit card, only a small amount is used to pay the principal, the rest will cover interest.
If you continue like this, years could go by without you reducing the amount of the debt and only dedicating yourself to paying interest.
You should only resort to the minimum payment when you have no other option, to avoid having a negative history in the credit bureau.
Cut expenses so you can pay more. Identify which expenses are unnecessary or which to reduce. For example, avoid eating out or compulsive shopping. Everything you save should go to pay debts.
Consider that this is a temporary measure in which your finances adjust and you finish paying your debts. However, if there are expenses that you can avoid going forward, that money could be used to save.
Use the snowball method. This is a way of dealing with debts that consists of ordering them from smallest to largest.
You start by paying the smallest debt first and the rest you only pay the minimum, to avoid a bad credit history. When you finish paying, you go to the next one and so on.
You must dedicate the same money as if you paid all the debts you have in the month, in order to move forward as quickly as possible.
Using this method will keep you motivated as you see results, however if you extend the payment of debts for a long time and remain paying the minimum, the cost of your credits can be very high.
Pay the most expensive debt first. This method is similar to the previous one, however, here the debts are ordered according to which one pays the highest interest.
You should focus on paying off that debt first, and the rest you can pay only the minimum. At the end, you go with the next one on the list, until you finish with the least expensive.
In the end, you will be paying much less, so you save by paying interest.
However, sometimes paying off the biggest debt first can take a long time and you may lose motivation, but don’t lose sight of your goal to prevent that from happening.
Consolidate all your debts into one. One option is to request a loan so that you pay off all your debts and only have one at the end; This way you avoid paying the interests of each credit separately and you save the payment of commissions or annuities.
You just have to keep in mind that this loan must have better or equal conditions and that you do not have to pay penalties for the advance payment of the credits.
Finally, the most important thing is that you set goals in a certain time, as you reach them it will be easier for you to continue with the discipline until the end.