The other day someone was complaining to me about a friend who constantly bothers her for financial help. She was wondering why he cannot even take an instant loan and fix his problems. One thing that actually made sadly is the fact that the friend often borrows not to use the funds in a productive way but rather for debt payment. Again, this even sad knowing the friend is on a well-paying job. This simply means one thing – he has borrowed too much then he can practically afford. What do you do when you find yourself in such a situation? Even before we talk of what you can do, let us understand how you first find yourself in such a state. There will always be a cost associated with using borrowed money.
This cost is what we often referred to as interest. It can be critical when you are living paycheck to paycheck. Any time you pay a debt you get destabilized and this forces you to take another loan. This situation continues to a point where you actually accumulates too much debt. Every end month you have a lot of payments to make and this leaves you with nothing or too little for upkeep.
Because you have to obey your loan obligation, you now start seeking help from family members and friends. This is a very bad state to be in and need should you let it happen to you. But what if you have already accumulated too much? Maybe you are struggling too much to deal with your debt. Don’t worry any longer because you are in the right place. In this blog, we are going to offer you all the basic pieces of advice you need to handle your debt. We will explain everything you need to do. So then continue reading…
What To Do When Overwhelmed With Debt:
Sometimes you can get yourself into a critical condition without knowing. And let no one lie to you that the reason why you are struggling with debt is that you do not earn too much. The truth is, even individuals with higher levels of income struggle with debt. You had the good intention of borrowing, maybe you were not just keen to acknowledge the red flags. Still, you can manage this condition friend. What should you do?
• Know The Value Of Your Debt:
This exactly where many fails. You cannot control something you don’t have the basic information about. You want to get out of debt? The first step is to know the total value of what you owe. So take time and write down all the debt you have and the interest in each. All other things will build on this.
I personally do not like the idea of sitting down to make a budget. But then a budget is a prerequisite of managing your debt and perhaps living a debt-free life. Trust me without budgeting, you spend on the things that are not that important. So budget for your funds and any excess amount you remain with should go into debt. The problem is how to budget and we are going to help you in this regard. The 50/30/20 rule has proved to be the most effective budgeting strategy for a decade and a half now. So the effective tax rate to calculate the net income you carry home every month. This is the money you remain with once all the taxes have been deducted. Then divide your expenses into needs and wants.
Needs are the expenses that you just cannot do without. You must settle them first or otherwise, your welfare will be significantly damaged. These expenses may include mortgages or ret and occur every month. Allocate 50% of your net income to them. Wants refer to the expenses you can even postpone without much suffering. Most of the wants are not fixed and you should allocate a maximum of 30% on them. The remaining 20% you go to savings and debt payment. Since your situation is out of hand already, use the 20% specifically for debt payment and let savings come later. Besides, we said you should allocate a maximum of 50% and 30%. Any amount you are going to remain with should be devoted to debt payment. As simple as that!
• Use Debt Avalanche Or Snowball Method To Repay Your Loan:
In step one, you listed all your debt and the interest on each. You have developed a budget and now you have to strategically attack your debt. There two outstanding approaches you can use in this regard – avalanche or snowball. Debt avalanche has often been advocated for in case one is overwhelmed with debt. Start paying debt one after another beginning with high-interest ones. Once you successfully pay the highest interest debt, go to the next one and continue this way until you finish.
You are going to save a lot of money on interest payment. In case this approach does not work for you, try the snowballing methodology. In this case, start with the low-interest debt and move to high-interest debt step by step until you finish. Seeing that you are managing to reduce the number of debt will give you the motivation to continue paying. While missing a payment may be detrimental, in this regard you can better your situation. Even so, we recommend that you make some minimum payments as you attack major debt.
• Look For Ways Of Increasing Your Income:
Supplementing your income can actually help manage your debt. How can you do this? As for promotion in your current company if possible. You can also work overtime if there is a consideration for that. Importantly, organize your schedule and look for a part-time job. You could be having a skill or knowledge currently not utilized. For instance, you can write articles or poems online and earn. Just look for a way of earning more income and devote the maximum amount possible to debt payment.
• Develop Healthy Financial Habits:
Poor financial habits are the main reason why people suffer financially. For instance, do you have to buy food when you are struggling financially? Why can’t you carry lunch from home? Do you take tea a cup of coffee at home or you go to Starbucks? Avoid buying food because it can be so expensive. Avoid these expenses by cooking your food. You have extra funds to settle your debt. Also, consider making second-hand purchases. Do not force yourself to buy something you cannot afford. Importantly, live within your means. You created a budget to direct how you spend and you should strictly follow it. If you think you need a low-interest loan find our more here Bugis Credit
• Surround Yourself With People Who Can Influence You Positively:
One biblical proverb says bad company ruins useful habits. Do not spend time with individuals who spend carelessly. Always surround yourself with friends who have good financial habits, people who respect your budget.
• Do Not Take Another Debt:
You are already struggling with debt. It will be absolutely ridiculous to take another debt. Even if you qualify, taking a loan will render your efforts to get out of debt irrelevant. In fact, you will be robbing Peter to pay Paul.
The Bottom Line:
It is so easy to get into debts and just do hard to get out of them. Nevertheless, with concerted efforts, you can manage. We have discussed several strategies you can use to handle your debt. If you still feel overwhelmed, talk seeks professional and you will receive the best kind of help. Otherwise, we wish you the best. Let us get your response.