Debts are not the best things in the world. At the end of the month, do you have to pay the instalment for a bank loan, a mortgage and a car loan, and you are already on the verge of your financial means? If you don’t pay enough attention to debts, they will knock you out. How to get rid of debt? Create a sustainable plan and stick to it at all costs!
The moment you owe it no longer matters how it happened. Did you necessarily need money to repair your car, without which you would not get to work? Did you want to make children happy and buy them wonderful gifts for Christmas? Or do you just have a mortgage that is a little beyond your means?
If it happened, the decision can no longer be revoked; you can ask your conscience later. Debt is debt, and the first step in getting rid of debt is to admit that you have some debt and that it should be your priority to pay it off as soon as possible. Debts will miraculously not repay themselves, and in addition, they will increase due to interest and possible fines for late payments.
Compound interest is a good servant but a bad master, and therefore it is good to draw up a sustainable plan that will get you out of debt. But definitely do not expect a walk through the rose garden.
Create a sustainable system
First, find out how much you owe and to whom. Ideally, make a clear table where you list all the debts so that you have everything in one place.
Now that you know to whom and how much you owe and you are adamantly determined to repay the debts to the last crown, congratulations, you have taken the first important step. What’s next? Now you need to put in place a sustainable system that guarantees that you will pay all the loans every month, and you will not forget any. Penalties for missed deadlines can otherwise become fatal. Debt repayment should always come first.
In order to repay your debts effectively, you need to plan your budget thoroughly and know exactly how much you will earn per month and how much you will spend. If you don’t know how to do this, read the following article to find out how to do it. Do you want to get rid of debts effectively? Make a budget!
Manage the money
The meaning of the budget is clear – you have to adjust your expenses so that you have funds to repay in every situation. It must never happen to you that you get into the red numbers, and you do not have to repay, after which you cover the difference with another loan. In that case, you can easily slip into a debt trap that you never have to get out of again.
Here is a practical example. Imagine that you have to repay 6,000 every month, and you manage a monthly budget of 20,000. As soon as you receive a payment, immediately put the necessary 6,000 aside, as it must remain available to you in any case. For this purpose, you can use, for example, a second bank account with another bank, on which you have set up a standing order for repayment.
Automating the whole process is generally a great helper to help you deal with your debts, as it eliminates the emotional experience of having to fill out a bank order for something you hate to death every month. Use technology to your advantage!
You now have 14,000 left to live. Does it seem small to you? Unfortunately, you will have to tighten your belt and keep your expenses to the minimum necessary. No one has said that it will be easy. Sure, you probably don’t want to eat dry bread and canned beans every day. Still, try to cut costs wherever possible.
- Ideas where to save a few hundred a months
- Catering in restaurants
- Subscription to any services such as Netflix, Spotify or O2 TV, etc.
- Supplementary pension insurance (when you get rid of debt, renew your contributions again)
- Excess insurance (phone, life insurance, additional car insurance)
- Membership in clubs (fitness) and possibly expensive children’s clubs
If you don’t want to stress whether you have to pay, rent, and starve at the same time, create your own sustainable budget that reflects your specific financial situation. Create a system to succeed and stick to it, whatever happens!
Methods of repaying debts
There are two very popular methods to get rid of debt. These are the so-called snowball and avalanche method. What are they, and which is right for you?
The principle of the snowball is that you repay the loans from the smallest debt to the largest. Imagine the following four loans:
- Consumer loan # 1 worth 35,000 with 13% interest
- Consumer loan # 2 worth 7,000 with 8% interest
- Car loan worth 120,000 with 9% interest
- Mortgage worth 1,000,000 with 3% interest
The snowball relies mainly on people’s psychology – you focus mostly on the lowest loan, which in this case is consumer loan # 2. This means that you are sending all unnecessary funds to repay this loan. At the same time, of course, you must not forget the remaining loans, but here it is enough always to repay only the minimum monthly amount. In short, you will dedicate any additional crown to repaying the loan in the smallest value.
Because this is the smallest loan, you will probably soon see that you will repay it successfully. This should give you the encouragement you need to repay the others!
Subsequently, you will start to focus most on consumer loan # 1, and then you will keep your car loan and mortgage at the end.
There is a second method called an avalanche. When repaying debts using the avalanche method, you will again sort the loans, but not according to their absolute amounts. It’s according to interest rates. So, first, you will focus on consumer loan # 1 because it has an interest rate of 13%. This means that again, although you repay all the loans at the same time, all possible additional funds go to repay the least advantageous loan with high-interest rates.
This may take a while (definitely longer than in the case of a snowball), but from a mathematical point of view it makes the most sense, as you pay the least money on interest (first you get rid of the loan with the highest interest, etc.)
Once you repay consumer loan # 1, you jump into a car loan and then a consumer loan # 2. In the end, you will be left with a mortgage, as in the case of a snowball. You pay less money on interest repaying the first loan can take quite a long time
Which method to choose? It’s up to you; everyone will like something different – someone needs a psychological advantage, others are more likely to be addressed by numbers.
Honestly, it doesn’t matter too much which method you choose! The main thing is not to forget the repayments and to repay at least the minimum required loan amount every month. This is just a guaranteed guide on how to get rid of debt! The main task always is to minimize own expenses and use the maximum amount to pay off debt. It doesn’t matter to whom And how much you owe. The main goal is to return all the money as quickly as possible and not pay extra interest.
Debt is not the best Aspect In the life of every person. Credit cards, various bonus conditions for buying real estate and cars are too tempting to refuse them. That is why people spend huge amounts of money that they don’t have on things that are not very important for everyday life. It is worth noting that modern society must learn to distribute money correctly so as not to end up in a debt hole due to job loss.
In this article, each user was able to find at least one item that makes sense in a specific example. For the correct way out of the tax and debt problems, each user needs to make the only right decision and reduce all his expenses. Only maximum debt financing will help get rid of such problems in the future.
Do not take too large loans that cannot be secured properly. Users must understand that credit programs exist in order for one party to earn and the other to pay additional interest. Only the choice of the right sources of financing and the complete rejection of rash spending will reduce debt obligations to banks and various financial companies.
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