What is The Smartest Way to Get Out of Debt?
According to the World Economic Forum, global debt is soaring at an incredible rate, especially in advanced economies. Governments, businesses, and individuals are surviving on debt, thus the exponential rise.
According to Achieve’s debt resolution program specialists, that means most of the public is not financially secure. The IMF says we live in dangerous times and that the global debt burden needs decisive action.
Although debt is almost inevitable, it is manageable, and the faster you can pay down your debt, the closer you get to achieving your financial goals. Whether it is applying for new credit, reducing your debt, or reducing your debt to be safe, planning ahead is vital., here are some of the smartest ways to get out of debt when developing a repayment plan.
1. Find Ways to Make More Money
The best strategy to help you pay down loans is boosting your income. Furthermore, you borrowed because you did not have enough. Considering the current inflationary trends, the cost of living is skyrocketing, and a single income is often unsustainable. Therefore, most people resort to taking up to three jobs to make a little extra cash.
An additional revenue stream can be active or passive. Active sources of revenue require a lot of commitment, time, and resources, while the latter may require less effort. Whatever it is, an additional job can be anything else that can help you make money during your free time.
Maximizing your efforts to make some extra cash helps you repay your debt faster and stay on top of your finances toward achieving your financial goals.
2. Pay off the smallest debts first.
It is easier to ignore or even forget small debts as you concentrate on dealing with the big ones. You will likely make this mistake as you assume it will be more manageable. However, small debts can grow significantly over time and threaten your financial stability.
Paying off the small loans as fast as possible gets them out of the way and leaves room in your budget to plan for the bigger or more expensive loans.
3. Apply for a debt management program.
Debt management solutions are great when you can no longer afford your loans. Essentially, a credit counselor assesses your debt and helps you negotiate payment arrangements with your creditors or even have debt written off. This measure can be very beneficial in repaying high-interest loans faster and remains one of the smartest way to get out of your financial troubles.
4. Sign up for Debt Consolidation
Another way to manage debt is consolidating them into one place using credit so that you only have a single debt to worry about. Debt consolidation significantly reduces the payable amount and saves you from high-interest loans.
However, this solution is only suitable for some. While it allows you to reduce interest rates and monthly payments, you might have to put something in collateral- a car or your home. Consolidated debts can quickly spill over and have you paying more. Therefore, exploring other debt management solutions that are typically less risky is smarter.
5. Make more than the minimum payment.
If you can consistently pay off your credit cards today, there is no guarantee that you will tomorrow. The biggest lesson about financial security is thinking beyond today and taking steps to help you on usually unforeseen rainy days. Making minimum payments and using several credit cards does not assure safety.
For instance, if you have a credit card balance of $6,600, your minimum monthly payment may be over $130; therefore, it will take about nine years to pay off the debt. During this period, you will likely borrow or make more purchases using other credit cards; thus, the cycle continues.
With this scenario in mind, it is crystal clear that making minimum payment does not bring you anywhere close to completely paying off your loan. Instead, you end up servicing it for longer.
The debt distress has crippled several households and drawn individuals further from their financial goals. While at it, consumers need to watch their spending habits and work towards building an emergency fund.
