Five Tips to Breaking Free From Your Debts
Nothing robs your peace of mind more than worrying about debt: sleepless nights, hiding from creditors, piling collection letters. This was the experience of Sarah, a publicist steeped in credit card bills. The anxiety made her sleep the whole day, waking up only when the collectors stopped calling late in the evenings. Until one day, she felt she had enough and decided to regain control of her life.
Sarah sold most of her things to pay off her debt, knowing that she could have them again if she worked hard and learned to control her spending.
Though getting out of debt is as difficult as quitting an addiction, it is still possible to reclaim financial health. Here's a five-step path to debt-free nirvana.
1. Face your debt, no matter how scary.
Grainne O'Malley, a financial and life-balance coach based in Northern Ireland, shares this piece of advice: Tell yourself the truth about your finances, and acknowledge the fact that it has become unmanageable.
2. Take stock of your debts.
Identify and list ALL your debts (credit card purchases, housing loans, medical fees, wedding expenses, car loans, etc.). Get the sum of your debts, including interest, late payment fees, and over-limit charges. Really take these numbers in. This is very important for creating an effective plan and moving you to a debt-free life.
3. Be aware of your spending habits.
You may have unconsciously incurred debts by buying things you don't need – small amounts add up. It is recommended that you become more conscious of your language and thoughts. Do you focus on continually on the debt, or on solutions? Are you constantly talking about always being broke? The most important step is to change the way you think about yourself.
4. Make it your conviction to stop spending unnecessarily.
To get out of debt, you must be strategic and deliberate. If you have debts incurred from credit cards, stop using them. Like kicking a habit, it is best to go cold turkey than letting go slowly. If you can't do it, make the necessary changes. Start using only cash or check – money you actually have, see, and feel.
Put your credit card in a safe place, not available for everyday use. Also, do not accept increases on your credit limit. Create a simple table jotting down the money you owe from whom, the minimum payment, interest rates, and their deadlines.
5. Create a budget and stick to it.
Determine the total amount of money disposable for paying your debts each month. Focus on your needs and not your wants. According to most creditors, a borrower's monthly ammortization should not exceed 30% of the household income. There should be enough of the household income left for living expenses and savings.
List all monthly bills and necessities, and make sure they are covered by your monthly income. Since taking care ofyour basic needs is a given, you must cut down on luxuries like dining out, overusing your cellphone credits, and buying clothes on a whim. Have a limit on how much you will allow yourself to withdraw each week and every month. You'll be amazed at savings yielded by small changes. Then, apply these savings to you debt. Use only the money remaining after the bills are paid.
Overall, it is never too late to get out of debt, so don’t be disheartened. You should seek solutions instead of dwelling on the problem. Once you have conditioned yourself to determine ways to emerge from debt hell, the easier it will be for you to face your problem with a clearer head and sounder strategy.