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5 Tips to Help You Recover from Debt
Apr 18, 2014
Falling into debt is easy but getting back out of it can be a slow and discouraging process. Don’t give up! With a bit of extra work and some education about financial matters, you can recover. The key to overcoming debt is to have a plan so take a deep breath, relax, and follow these 5 tips.
1. Break it down
Don’t worry about the entire sum that you owe to all of your different lenders. Instead, break it down into small parts and focus on clearing one or two at a time. Organize your debts into categories based on interest rate and work towards clearing them in order:
- Credit cards;
- Mortgage payments;
- Car payments;
- Bank loans; and
- Friendly loans.
By breaking it down you will not only make it less overwhelming to deal with but you will give yourself a sense of accomplishment as you clear each part of your debt.
Start with the highest interest rates and work your way down. If possible, transfer your debt to lower interest rates by paying off the highest ones (often credit cards) with loans or more reasonable credit cards. This will save you a lot of money in the long run by ensuring that what you are paying is going in to reducing the capital and not simply paying interest.
Get really good at bookkeeping and cut back spending wherever you can. Keep track of all of your costs and make a budget that you will stick to in order to maximize the amount of money you can spend each month on clearing your debts.
4. Increase your earnings
Budgeting has an upper limit of course so it can only take you so far. If possible, consider picking up a side job in your spare time in order to help clear your debt and build up your savings. Depending on your skills you may be able to pick up freelance work or help friends and family with babysitting or work around the house. Develop an eye for opportunity and it will stay with you long after you are free from debt.
5. Think long term
Most importantly, do not focus too much on clearing your debt as fast as possible as this can often backfire. Instead of spending 90% of your income paying off a credit card only to have to use it again before your next pay, plan your spending in order to ensure you do not need to continue accumulating debt. Don’t forget your savings either. Whenever possible you should be putting 5-10% of your income into savings each month in order to prevent needing to use credit in an emergency situation.