Wouldn’t it be a great thing for you to get out of debt or at least reduce it substantially? Well, if you are truly serious about making that happen, here are some time-tested tips on how to get out of debt…
- Live Below Your Means
It’s great to give expert advice and show you other tips that will help you reduce your debts. However, if you really want to get out of debt and stay out of debt then there’s one place you have to start…
The simple rule is “make sure you live below your means”. Some people advise that you live within your means but that doesn’t paint the true picture. This because living within your means could be living towards the edge or within a comfortable margin.
To make things easier to understand, you MUST be able to put away twenty percent of your earnings each month as savings AFTER you’ve met all your standard obligations like utility, groceries, insurance, etc.
If you can’t do that then it means you aren’t living within a margin that will allow you to become debt-free and stay so.
- Pay A Bit More Than The Minimum
We know things are quite tight and paying your bills on time is tough enough. However, we’d advise that you do a bit more…
Don’t just make the minimum payments on your credit cards at the end of each month. Try to pay just a bit extra. Paying as little as $50 more will help you reduce the interest you pay on each of those cards over time. The simple logic is: The more you pay at a time, the lower the amount you’d have to pay in interest over time.
That’s money saved.
- Consolidate Your Debts
You can take out a loan that helps you pay off your debts while consolidating them. All you’ll have to do is make one payment each month usually at a lower interest rate than your various debts.
But while this is a solution that has helped people pay off their debts, it only does if you’ve done the smart thing and have budgeted correctly. By budgeting correctly, we mean that you’ve planned your spending in such a way that you aren’t racking up new debt as you pay off the debt consolidation loan.
Furthermore, a good budget would also mean that you’ve taken steps to ensure that you are able to put away some money in savings. The savings will come in handy if you have to deal with emergencies that might come up while still servicing the consolidation loan. If you don’t have this in place, you’d be compelled to pull out a credit card for such situations and create a vicious circle of debt.
Failure to do these two things might mean you end up going back to where you were in debts before you got the loan or even worse.
- Start Shopping Smart
By smart shopping, we mean you should learn how to take advantage of every legal opportunity to reduce your costs while shopping for necessities. Here are few smart shopping tips…
- Take advantage of coupons. Yes, you know those help you get savings, but do you use them? And while you use them, make sure you limit such use to items you already have on your list. If you buy unnecessary items just to use a coupon, the savings benefits are lost.
- Buy pre-loved outfits especially if you have young growing kids. What’s the point in spending a lot of money on clothes that won’t fit in a few short months?
- Make a list of your groceries before you step out to shop and make sure you stick to it. Impulse buying costs a lot of money and leads to debt.
- Buy A Used Car
Did you know that a brand new car loses up to 20% of its value once you pay for it and drive it off the dealership? Did you also know that you typically pay much more in sales tax on a new car than on a used one?
So how much would those two save you?
Now factor in the following…
The cost of a brand new car vs a used one – A used car could be up to 50% cheaper depending on how many mileage it has on it.
Insurance premium on a new car vs a used one –All other things being equal, you’ll get much lower premiums on a used car because of its current market value.
These all add up and, depending on how well you do shopping for a used car, you can still enjoy most of the features of a new car without paying the high cost associated with it.
- Get a Second Job Or A Side Hustle
While your spending habits determine how indebted you are, the amount you have available for the basic things of life is also a big factor. If you have a family of five but earn less than $3,000 per month, you are going to have a hard time living debt-free in the US while meeting your obligations.
So, if it’s something that’s available to you, a second job will help you bring in a bit more. And for those who might not have the time, opportunity nor inclination to get a second job, starting a side business can help.
There are many folks who make over a thousand dollars each month in their spare time freelancing, for example. Explore various opportunities around you and you’d be able to make a bit more.
- Boost Your Credit Score
One of the most important factors that determines how good a deal you get across most financial products is your credit score. If it’s high, you’ll attract lower interest on loans, more affordable insurance premiums and be easily eligible for a number of financial products that will help you get out of debt more easily.
If, on the other hand, your credit score is low, you will be expected to put down a larger amount for a car loan, for example. Furthermore, you’ll also be slammed with a higher rate. So if you want to get those savings on insurance premium, loans and other financial products, you just have to do your best to get a higher credit score.
So how do you do it?
Well, there are a number of ways that are time-tested. Here are a few…
- Pay your bills on time. It has a big impact on your credit history which accounts for up to 35% of your FICO Score. Late payments impact your score negatively.
- Reduce your credit utilization to a maximum of 30%. Your target should be 10%. Credit utilization is the percentage of your credit limit that you actually make use of.
- Take advantage of your rent payments if you’re a renter. You can boost your credit score by up to 100 points using this method. A good reporting service can help you get the most out your rent payments for up to the past 24 months.