Debt spiral should be a wake-up call for the amendment in your spending behaviour, but the alarm bell rings when it is too late. Since borrowing money is far easier now, you often fail to consider that you are borrowing more than your affordability.
However, your spending habits should partly blame for being fallen into debt. When you get into debt, the first thing you need to do is to make a debt repayment plan. It will help you pay off your outstanding dues without being panicked.
When you know you are to pay off the debt and do not have the strategy to do so, you will naturally panic. Well, what has happened has happened. You cannot nullify the impact of what you have done, but you can think of how to stop to rack it up.
It is essential to nip it into the bud before it goes out of your control. This blog discusses some tips to make a debt repayment plan.
Know how much debt you have taken on
You cannot make a strategy unless you know the total amount of money you owe. Make a list of all types of loans, including credit card bills. Make sure you write the total amount you owe to a lender along with the minimum monthly payment you can make.
If you owe money to your friends, add in that as well. To determine minimum monthly payments, you should know how much money you are left with after meeting all of your regular expenses. For that, you will have to look over your budget.
Check your previous months’ bank statements to see how much you spend every month. Of course, you will have to cut back on your spending now so more money you can throw at your debt payments.
Remember that minimum payments can help you ease off your debt burden, but they cannot help you avoid accruing interest on the rest amount. Since you have to be strategic with debt payments, you will have to decide
- whether you will be paying the small amount first
- or the debt with high interest rate.
It all depends on your current financial condition. Payment of high-interest rate debt can help you avoid losing your money interest payments, while the small amount payment can first motivate you to stick to your repayment plan.
However, experts suggest that you should pick one debt that you can pay off once and for all while paying down the minimum payments on other debts. This will help you settle your debt one by one.
Find extra money
Well, no matter how you decide to keep paying down your current debt, you will have to cut back on your spending. Here the goal is to settle your debt as soon as possible. This is because the more you delay, the more money you will spend paying in interest.
If you find that your regular monthly income is not sufficient to allow you to stick to your debt payment plan, you should figure out ways to increase your income. Apart from your full-time job, you should grab a side gig and make sure that you use that money toward the debt payment only.
Make sure that you make a strict budget. Experts suggest that you should live off a lean budget unless you settle the whole of your outstanding debts.
A lean budget allows you to meet only essential expenses. It completely cuts back on discretionary expenses. If you receive any gift or bonus, or tax return, you should utilise that money for the debt payment.
Find extreme ways of saving money
Cutting down on discretionary expenses may not be enough to deal with your debt problems. You will have to be rigorous with your savings. There are various extreme ways to set aside money and utilise that money for paying down your debt.
- Hair cut is essential, but you can save money on salon visits by cutting your own hair.
- Try to adjust your whole family at a smaller pace. This can help cut the rental cost by half. You can also move into your parents’ house for some time and use the basement if they have. They will not mind sharing the space with you.
- You should unsubscribe from cable services like Netflix, Amazon Prime, Hotstar, and the like. Instead, you should find alternative ways.
Build emergency cushion
Once you have paid off all of your debts, you should start setting aside money for a rainy day. This will prevent you from borrowing money in case of a financial emergency.
Ensure that you still follow the strict budgeting because otherwise, you will again feel the need to borrow money.
Note that you may not be able to take out a loan just after the settlement of your debt. This is because lenders will run a credit check in Ireland and they may turn you down, and if they approve, you will end up borrowing at high interest rates. Fining a debt repayment plan can be very challenging, but once you find it, you should stick to it unless you have cleared all of your debts. After paying off your debt, you should start stashing away money to not fall into debt again.