Debt can feel overwhelming when you don’t know how you are going to pay it off. In worst-case scenarios, it becomes the source of emotional stress, sure to impact all aspects of one’s life. However, that should never be the case considering that most people have some form of debt.
If treated well, debt can be useful and could be the trigger to riches in the near future. Debt becomes a problem when left to spiral out of control. If this were to happen, then the following strategies will have to come into play to rescue the situation.
Where do you stand?
The first step to paying off debt starts with ascertaining where one stands financially. This would be the perfect time to understand ones debts. In his case, list downs all the debts from credit card debt to store card as well as bank overdraft and mortgage debt.
Listing down all the debt makes it easier to know which debts need immediate attention and which could be pushed back.
Do a budget focusing on Cutting Costs.
Once all the debts are listed, it would be wise to look for ways to generate some money to pay off some of the debt. Likewise, writing a budget should help shed more light on the amount of earnings that could go towards refinancing the debts.
A budget provides a clear idea of where income goes. Similarly, it becomes pretty easy to make changes on spending patterns with a budget, conversely directing a good chunk of the money to refinance the debt.
The budget should focus on cutting back on unnecessary expenditures with the money directed straight to paying off debt.
Pay Off debt before saving.
When bogged with lots of debts, then saving won’t make any sense. The interest rates available on most savings accounts are pretty low compared to the interest rates charged on most debts. Likewise, paying off debt instead of saving helps reduce debt much faster than the amount of money that one earns on savings.
Similarly, instead of directing a good chunk of the income towards savings, it would be wise to first focus on paying off debt, with only a small portion going towards savings for emergencies. Conversely, paying off debt could end up saving one’s hundreds of dollars in interest of charges.
Pay off of Most Expensive Debt
Upon listing all the debts, the focus should be on the debts with the highest interest rates.. By paying off these debts, you reduce the debt from increasing month over a month, given the high interest charged.
In addition to paying off the most expensive debt, it is important to ensure that you pay more than the minimum balance on the other debts. Paying more than the minimum balances helps reduce the payment period; conversely, interest accumulation.
Save on shopping
Paying off debt is all about finding some money on the side. What a better way to generate some money by simply saving on shopping. While buying items, it would be good to drop some of the brand names that cost a fortune and instead focus on alternatives that don’t cost much.
It will never hurt or affect one’s quality of life just to try a budget supermarket or choosing a lower-level brand. Likewise, haggling on price in some of the items would also ensure you get some of the best deals, similarly saving some money for debt repayment.
Check your tax code
In addition to directing a good chunk of income towards debt repayment, looking for other income sources to accelerate debt repayment should come into play. The first step, in this case, should be your tax code.
By simply checking your tax returns, you could find areas where you overpaid, conversely eligible for a tax refund. Any refund from the overpaid tax should go straight towards refinancing debt. Likewise, this would be the time to check if you are eligible for tax credits.
Some states are known to offer tax credits to people responsible for children, disabled workers, and low-income workers. A tax credit reduces your tax bill, which leaves you with some money on the side that can go straight to debt repayment.
Sell some Items
Additional income can be generated by simply disposing of some household items that are no longer of any benefit. Similarly, this would be the perfect time to sell-off that furniture still in good shape that you no longer need.
If your kids are all grown up, this would also be the perfect time to sell off some of the clothes and toys they no longer need. Anything that is in good shape and condition and no longer in use could help generate some income to pay off some of the debt.