4 Keys to Getting Out of Debt
October 30, 2012
It is so much easier to get into debt than it is to get out of debt. You’ve already signed up for years of payments and tons of interest. Those factors make it really hard to just change your mind today and be out of debt tomorrow – regardless of what debt reduction methods you use.
Nonetheless if you have decided to finally get out of debt there are some key things you need to do to be successful with your plan.
Key Factors to Getting Out of Debt
Here are four things you must starting doing today in order to get out of debt as quickly as possible.
1. Spend less than you earn.
The absolutely most critical thing you must do to get out of debt is the most simple one: spend less than you earn.
You have to stop the bleeding before you can begin to heal. If you are still spending more than you earn it doesn’t matter how creative you get with your debt, you are never going to pay it off and only continue adding to the balance. Even if you just have an extra dollar left over each month, you are ahead of the person that made $1 million and spent $1 million plus a dollar.
There is no mathematical way to get out of debt if you are still adding to your overall debt amount. It is impossible. You can’t get out of a hole by digging further; that’s what spending more than you earn does to you. If you pay off $1,000 but charge $1,100 on your credit card, you are headed in the wrong direction.
Every other factor starts here. How you get to spending less than you earn is up to you. Some people take on strict budgets, some people just stop spending money. Whatever works for you is fine, just make sure you aren’t spending more than you make each week or month.
2. Don’t miss a payment.
After you have stopped the bleeding by spending less than you earn, you want to make sure you don’t get hit with any surprise fees by missing a payment. Not only will credit card companies hit you with a late fee, they will also jack your interest rate up to the max which is usually well above 20%. Even if your debt isn’t to a credit card, missing a payment will result in fees and penalties that keep you in debt.
3. Don’t add more debt.
I’ve already mentioned that spending more than you earn will add to your debt load. Don’t do that, but heed this warning as well: Don’t take on any new major debt, either.
That means don’t go out and buy a new car with an amazing 0.9% interest rate. Don’t open a new store credit card. Don’t open up a home equity line of credit. Don’t do anything that is going to extend a new line of credit to you no matter how amazing the rate is.
Again, you can’t get out of debt by adding more to it. The only exception to this is if you are consolidating your debts down to a lower rate – but you really have to know what you are doing to make this a successful strategy.
4. Work a debt payoff plan.
Lastly, you have to work some sort of plan in regards to paying off your debt. You won’t find a lot of success by randomly deciding to send in extra principal payments on your balances each month.
There are differing views as to which debt payoff plan is the best – some believe paying off the lowest balance is best, others say paying off the highest interest rate is best – but in the end it really doesn’t matter.
Mathematically speaking paying off the highest interest rate debt will lead to you paying the least amount of interest, but as long as you are working some plan it doesn’t really matter. Get a plan together, work the plan, and pay off your debt.
Are you paying off debt? How are you doing it, and how what would you recommend to others? Leave a comment!
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