How to get out of debt (once and for all)

To begin with, you need a complete picture of the current situation. If you write down how much and to whom you owe, it is much easier to plan payments. Perhaps, looking at the amount, you will find that everything is not as scary as it seemed.

Where to start?

1. Admit you’re in debt

Before taking on the technical part, give yourself time to realize that there are debts, but you want to say goodbye to them. Forgive yourself for all the rash purchases, late payments and spontaneous spending. It will hurt at first, but you have to get through it.

2. Create a checklist

Surprisingly, very few keep track of their debt. Most likely, such frivolity is explained by the unwillingness to feel guilty, but if you do not pull yourself together, it is almost impossible to get out of the debt hole. Create a spreadsheet in Google or Excel and enter all debts into it. Stick to this system: name of the lender, interest rate, total balance, loan term (if any), minimum payment. Include student loans, credit cards, and other mandatory payments.

3. Number your debts

When you have finished compiling the statement, number the lines in order of priority. This is critical: you will get a clear idea of ​​where to start and in what sequence to complete the planned steps.

How to prioritize?

Debt is different. It is important to understand that there are different types of financial obligations.

1. Divide debt into bad and good

As a rule, bad debts are a retribution for momentary impulses: we buy because we want to, and not because we need to. Although there are extraordinary circumstances when you cannot do without a loan, but mostly these are excessive expenses. There are three categories of bad debt:

• credit card debt;
• car loans;
• consumer loans.

Good debt is an investment in the future. They also fall into three categories:

• student loans;
• mortgage;
• business development loans.

2. Decide Which Debt to Close First

I recommend doing away with bad debt, whether it’s a car loan or a credit card. Try to pay off loans with the highest interest rates as soon as possible. If there are several credit cards, close the one on which the highest percentage is withdrawn. This way you save more money.

3. Pay above the minimum

Minimum payments drive you into financial bondage, since interest and commissions eat up the lion’s share of the contribution. Even a small amount above the minimum will allow you to quickly get out of financial difficulties.

Down with obstacles and excuses

It’s easy to create a checklist and prioritize. It’s harder to resist temptation.

1. Set a reminder

As Peter Drucker said, «You can only manage what you can measure.» Debts, like the results of the work done, also need to be measured regularly. Start with a weekly reminder: at the signal, go to your spreadsheet and check the balance. Did the numbers increase, decrease or stay the same? For example, regular monitoring of student loans is incredibly motivating. By noticing how the total amount decreases, you will be more and more proud of yourself. Set monthly and weekly goals to see progress and stay on track.

You and Them: How is your relationship with money?

2. Hide Credit Cards

If credit card debt has become a major headache, get rid of the temptation immediately: remove them from your wallet. Some people go to extreme lengths and freeze their cards. What for? To gradually wean from overspending. In addition, this is an opportunity to think about whether a credit card is really needed and throw it away after the final payment.

3. Automate all current payments

Willpower is great, but it may not be enough. Automate all monthly payments and live with a clear conscience.

4. Plan ahead

For example, if a friend’s birthday or a family celebration is approaching, calculate the likely costs. You may have to cut your weekly budget, take a part-time job, or even refuse the invitation altogether.

5. Save money

The surest way to get out of debt is to sacrifice some habits. Think about where you can save money so that you can use that money for more important purposes. Here’s how to spend less:

• rent a house for a share;
• cook yourself and take lunch to work so as not to go to a cafe;
• abandon cable television and switch to series;
• ride public transport or bike;
• reduce the interest rate.

The higher the interest rate, the harder and longer it takes to get out of debt. Do your best to bring it down.

1. Maintain a high credit score

You can negotiate with the bank to restructure or refinance the debt and soften the terms of the loan. But keep in mind, it all depends on the credit history: if it is damaged, nothing will come of it. Therefore, try to increase your reputation as a payer:

• never delay;
• do not exceed 30% of the credit limit;
• do not have more than one credit card;
• limit requests: do not take out auto loans and do not make expensive installment purchases;
• track your credit history through free online services.

2. Double-check the rules for using the card

Many banks provide a considerable percentage when withdrawing cash and take nothing when paying through the terminal: the difference can be huge. In addition, the advance service is very expensive: for using funds in excess of the main limit, not only interest is charged, but also a solid commission.

The terms and conditions of using credit cards often stipulate a grace period without interest (from 30 to 55 days), but if you do not return the money on time, the amount of debt instantly increases.

How to end debt forever

Planning, discipline, cutting costs is half the battle. It is important not only to get rid of debts, but also never to step on the same rake.

1. Control and correct

Don’t let yourself relax. Stick to the prepared anti-crisis program and, if necessary, make changes. Don’t forget your credit score. The higher it rises, the more likely it is to refinance on more favorable terms.

2. Earn more

You can save money not only. Instead of hunting for discounts or denying yourself a cup of morning coffee, think about how to increase income. Hand on heart, it is much easier to earn an extra couple of thousand a month than to carve out the same couple of thousand from the monthly budget.

Some ideas for additional income

• Talk to management about a salary or commission increase. If nothing works, don’t be afraid to change jobs. For example, some companies reimburse training costs.
• Look for a side job. You can become a tutor, an Uber driver, or take paid online surveys. There are tons of ways to make money in your free time. After all, you have decided to do away with debt, which means that you are more than interested in additional income.
• Create an online business. Many websites and blogs make money from advertising, referral programs and other online services.

3. Celebrate success

Reward yourself for hard work and discipline, without which it is impossible to deal with debt. Of course, we are not talking about expensive gifts and entertainment, otherwise you will not budge. But small pleasures are necessary for motivation.

4. Set new financial goals

If you have a clear plan for getting out of the crisis and you are determined to carry it out, everything will work out. Be sure to celebrate the ultimate victory over debt, but don’t stop there.

Now you can breathe a sigh of relief and focus on your well-being. Set new financial goals so you can see where to go and where to put effort.

Hooray, you are debt free and you can finally dream! Imagine where you want to go, what your own home will be like, or save money for a future retirement. Most importantly, make sure your goals are specific, measurable, and achievable.

If you’ve read this far, congratulations. The only thing left is to develop a plan to quickly get rid of debt (best of all, once and for all). But remember: fast doesn’t mean easy. You will have to endure limitations, struggle with doubts, overcome difficulties — as with any great goal.

About the author: Michael Leonard is a writer, blogger, and business coach.