Factors to Consider to Be Debt Free
Most people are in debt nowadays. This is either in form of mortgage, medical debt, student loans, credit card debt or any other. When one is in debt it can be hard to save for retirement, meet up with friends, raise a family and even start life. However, you should not let your debt to define you. The important thing is knowing how you can get out of the debt. Read on to know how you can eliminate debts.
You need to confront your debt. It can be scary to think of the debt you are in. However, when you ignore the problem things will only get worse. You should tally all the debt you have such as car loans, credit card debt, student loans, mortgage and medical debt. You will be able to know your total debt. Do a calculation of your income with debt. You should calculate the debt to income ratio. You will get a good picture of the debt you are in. Having an idea of the extent of the problem will make it easy to come up with a solution.
It is important to have a budget. Take note of your expenses each month such as food, utilities, phone bill, mortgage or rent and car payment. Use 50% of the budget towards important expenses, 30% for wants and 20% for debt repayment and savings. You need to have limits on what to spend for fun and stick to it.
You need to avoid expensive habits. This will help you get space in your budget. Choose to cut down on eating out to pay your student loan debt.
It is vital you pay more than the minimum. It will be much easier to pay more than the minimum if you lose your expensive hobbies. You should approach debts just like bills. You need to pay off your debts before paying for anything else. When you have extra cash, you need to direct it towards your debt instead of shopping and drinks.
Consider the snowball method. This means taking note of your debts from the smallest to the largest. Put all the excess money to the smallest amounts and make minimum payments on larger loans. With time, the debts will begin to disappear.
It is advisable to consider the envelope system if you don’t like budgeting. Debit cards are ideal because you will just swipe the card and not see money getting off your hand. Write expenses on different envelopes and put cash in each envelope. It is important to have emergency funds. When in debt, you may feel like cutting off on emergency funds. It is advisable to have at least $1,000 for emergencies.