I was deeply in debt a year ago. I found myself in a credit crunch day after day. When I began taking out loans to pay off other loans, things took a turn for the worse. I'd use one credit card to pay off debt on another, not realizing I was incurring new debt.
I also missed payments on my utility and credit card bills and had to pay penalties as a result. Because I was being charged higher interest rates, my debt began to balloon – to grow faster and larger.
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Debt collectors were on my tail, but I didn't have enough money to pay off my creditors. It took time and discipline for me to improve my financial situation. Here are five things I learned not to do in order to get out of debt:
1. Stop ignoring money problems and take charge of them
Make a list of your earnings and expenses. You must be able to make more money than you spend. You should also prioritize your necessities and let go of extraneous items. Make a payment plan to pay off your creditors as well.
This will assist you in creating a budget. Finally, using a pair of scissors, cut up all of your credit cards. If you keep them, they will tempt you, so this is necessary for debt freedom. If you must, keep a single credit card with a low credit limit for emergencies.
2. Stop frivolous spending by creating a realistic budget
Keeping track of your income and expenses is only the first step; the bigger step is to create and stick to a budget. Set realistic ratios for different types of expenses, such as 20% of your income should be able to cover your food bill, 40% of your income should cover your utilities, and so on.
Get rid of unnecessary items like gym memberships and high-priced beverages. Make sure you have enough money left over to pay off some of your debts.
3. Don't spend your emergency fund: it's only for true emergencies
An emergency fund works as follows: when you keep money in the emergency fund, you are supposed to forget about it. This is due to the fact that these funds are only for emergencies, and paying off your debt is not one of them.
This money should not be touched, but you should look for other sources of income, such as a second job or project-based income, and you may need to sell some personal items to make ends meet. The rate at which you can generate income is directly proportional to the rate at which you can get out of debt.
4. Stop putting off bill payments: your debt will grow faster
Make it a rule to only pay in cash. Credit cards should not be used because they are a form of deferred payment that charges interest. Because of the high interest rates and penalty fees, deferring large payments on your credit cards will increase the burden of your debt faster. Negotiate a payment plan with your creditors.
5. Stop paying exorbitant interest rates on your debt: bargain
It is not difficult to negotiate lower interest rates. Collect all of your financial statements and contact a representative from your credit card company or financial institution. Be polite to them because they are doing you a favor! Remember to make your monthly payments in full and on time to qualify for lower interest rates.
If you have a history of late payments, make sure to pay on time in the future and continue to try to negotiate a lower interest rate. If, despite your persistence, they do not lower your interest rate, consider taking your business elsewhere to another company that will give you a better deal.
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