In this day and age, it is becoming increasingly easier to obtain loans and buy things on credit or hire purchase. There are many financial products out there that have perpetuated indebtedness in a lot of people. One of the major culprits is credit cards; many people have dug themselves into an unending cycle of debt through the use of credit cards.
On the other hand, there are people who have gotten into debts through no fault of their per se; issues such as family emergencies, health challenges and college fees have roped them into unforeseen debts. No matter the reason why you are indebted, a high percentage of responsible people want out; no sane person actually wants to be inundated with debts.
In this article therefore, we will share expert tips to help you become debt-free, so stay with us…
How to Get out of Debt
Debt is one of the most debilitating financial burdens that a person can have and there are many strategies out there that promise to help people come out of debts. Some of these strategies work while others don’t! When people are in so much debt and they need a way out, it is very easy to scam them and get them into more trouble.
Have an Overview of all your Debts
The first thing you are advised to do is to make a list of all your debts from the smallest to the largest. You can ether use a spreadsheet or paper.
This list must include the following:-
- Every single loan collected Instalment agreement if any and credit card debts.
- The amount owed(loans, credit card , hire purchase, instalment agreement)
- Repayment period and how far you’ve gone in repaying
- The cost of the debt which means the effective interest on the loans
Bear in mind that knowing the cost of your loans is very important because it will help you know which ones are cheap and which ones are expensive as per the interest rate.
Apply the Snowball Method
After you have made a list of all your debts, the next thing you can do is to start making minimum payment on them all leaving out the smallest one. Then go ahead to attack that smallest outstanding by putting in as much money into repaying as possible; the aim is to pay off the one first.
Once you pay off the smallest amount, you move on to the next smallest amount and keep repeating this process until you have paid off all your outstanding. Paying off smaller debts helps to free up money faster. The process now becomes like a snowball that is rolling downhill; it may start put small but by the time it gets to the bottom of the hill it has become massive.
Paying off small debts first helps you to gain momentum in the journey of becoming debt-free because the small wins become a source of motivation.
Consider Refinancing or Loan Consolidation
You can consider taking out a refi loan or consolidating your loans. Refi loans help you to get a loan with a better loan term and interest rate, thereby making it easier for you to pay off the burdensome outstanding.
If your debt is as a result credit cards, we recommend that you first get rid of the cards so that you don’t accumulate more debts.
Debt consolidation is a financial process that allows a debtor to merge small loans into one and take out a lump sum to pay off the loans. Most people take out refi loans in order to get a loan with better terms and rates.
This loan also enables the borrower to get a better grasp on their financial commitment. With many small loans it is very easy to miss a payment on one loan; however, with a refi loan, you have all your commitments in one place which rules out the possibility of ever missing any payment.
A refi loan therefore makes consistent payment possible which in turn enables the borrower to become debt-free as fast as possible.
Draw Up a Budget
A budget is a very useful tool for financial accountability and responsibility. It could cover a weekly, monthly, bi-monthly, quarterly or yearly period. However, for this purpose, you should draw up a monthly budget and it should be simple and easy to understand and also realistic.
Factor in fixed monthly expenses such as insurance, electricity, telephone and other utility bills; not forgetting the new loan repayment schedule (if you took out a refi loan). In addition to the fixed expenses have a realistic estimate of what to spend on food, cloths, leisure and other miscellaneous expenses.
With a proper budget in place which you must adhere strictly to of course, you’ll be well on your way to get rid of your outstanding payments faster than when you didn’t have a budget. Click here for more information on budgeting.
Reduce Consumption and Save More
If you are looking to become debt-free, then you should think of ways to reduce your consumption so that you can save some money. It goes without saying that the money saved from reduced consumption should then go into loan repayments.
You go about reducing consumption by looking at how you spend your money and what you spend it on. Your bank statement can go a long way to help you in this regard. When you have a clear overview of how and what you spend your money on, you can then go on to make adjustments.
You can start out by drawing up a weekly menu so that when you go stopping for food you will not just buy stuff randomly. When you have a well organised shopping list, you save money on grocery shopping.
Statistics show that most Norwegian households spend their income in the following way:-
- Housing – 20%
- Transport -15%
- Food and Groceries – 12%
- Leisure and pocket money – 10%
With the above, you can see where most of your income goes and then think of how to cut down those expenses to save some money. The following are suggestions to help you cut down consumption:-
- Housing – You can save a substantial amount on property taxes. You can also negotiate lower interest rates if you are on a mortgage. If you are a renter, you can consider a shared apartment so that the expenses can be shared; an example of expense that can be shared is electricity bills.
- Transportation – Consider carefully, whether you need to have a personal car; if your calculations show that the car is more of a liability than an asset, it means you just have to sell it. You can also check the places you go to on a daily basis and find out how you can cut cost of transportation; it wouldn’t t be a bad idea to incorporate more walks into your daily routine.
- Food – A lot of people spend way more than they should be spending on food because of a lack of proper planning. They either do not plan their purchases and where to make them or they just visit the stores way too often. Remember your budget? Yes, follow it strictly and that will entail scheduling your grocery and food shopping in such a way that you can go to farmer’s markets and other outlets where you can avoid a long line of middlemen. Careful planning on grocery and food shopping will save you unbelievable amounts of money.
- Leisure and Miscellaneous Items – These include gym, dining out, movies and the likes. Instead of paying subscription to go exercise in a gym, you can take long hikes and explore nature. Look for leisure activities that do not cost a thing; activities such as picnics would help you and your loved ones bond without spending significant sums.
Other items to think about when considering where to cut cost include TV and internet subscriptions and alcohol and tobacco consumption. You’ll be amazed at the amounts you will save at the end of a year of being strict with your finances.
Another thing which we have mentioned earlier is to cut off your credit cards or at least limit its usage.
Set your Loan Repayment Priorities Right
In the event that you have many small loans that come up to a high total, chances are that you may not get a refi loan that would sort out all the debts. The maximum sum you can get form most banks in an unsecured loan agreement is NOK500, 000 and mind you, this sum is dependent on the result of the lender’s assessment of your financial history.
So let’s assume that you are unable to assess a refi, it means that you really have to prioritize your loan repayments. Check all outstanding repayments and note the most expensive one, the one with the highest effective interest rates and begin from there.
Visit https://www.billigeforbrukslån.no/bli-kvitt-gjeld/ for more insight.
Go for Extra Income
Think of different ways to make extra income legitimately. Look around your home for items that you haven’t used in a long while that can be useful to someone else; sell them on different platforms for used items and make extra money.
You can also look into requesting for overtime at work or take on extra shifts on weekends and holidays. Another thing you can do is request for a raise at work; but you know you can only do this if you have been putting in your best and your employer is pleased with your work.
Conclusion
Where there is a will, there is a way. This therefore means that if you are really serious about becoming debt-free, you can do it. These tips shared here will go a long way to help you so bear them in mind going forward.