Getting out of debt and stay out of it can be a little hard to do. But if you control the way you spend your money, you can go a long way to getting out of it. However, you need to understand that not all debt is bad.
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Two Types of Debt:
A good and a bad debt. A good debt is a one that helps you to buy something that increases in value and generates income. For example, borrowing money to buy a house or investment property is considered a good debt, because it may increase in value and generate monthly rental income.
On the other hand, a bad debt is one that does not earn you any income and is not tax deductible. A good example would be taking a personal loan for a holiday, or use a credit card to purchase a TV.
If you are dealing with bad debts, follow the steps below:
1. Get A Part-time Job or Work Overtime
A part-time job, for example, or working overtime can bring an additional $500 a week, and can help pay down a high interest credit card or car loan.
2. Stop Borrowing More Money
Adding new debt while you’re trying to get out of it is not a good idea, because it can cost you extra interest payments. If, however, you decide to borrow, take a look at your budget first to see how much left over money you can afford in making payments.
If you haven’t created a budget yet, our article on how to create a budget has some great tips and can help you get started.
3. Make a Payment Plan and Learn to Stick to It
4. Pay Off Your Debt Starting With the One With the Highest Interest Rate.
Of all types of credits, credit cards tend to carry a higher interest rate. So it only makes sense to pay off those debts first.
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5. Pay More than the Monthly Minimum
If you simply make the minimum payment, you will end up paying more in interest and it will take longer to pay off your balance. So make more than the minimum to pay your it off as quickly as possible.
If you can’t pay more the minimum payments, you can always call the loan or the credit card provider and ask them to reduce the interest rate on your loan or credit card. Depending on your credit score, whether you’re employed, and if you haven’t missed a payment, they can be more than willing to negotiate a lower interest rate.
6. Reduce Your Expenses
One of the best ways to stay out of debt is finding a way to cut back on your expenses. The first thing to do is to review your budget to find things that can be reduced.
Fixed expenses can be a little bit harder to cut back on, but things like Cable or gym memberships can be cut back because you can certainly live without them.
7. Consolidate Your Debt
If you have a lot of loans, you should consider applying for a debt consolidation loan to pay the others off. You then have to pay it back, but usually this type of loan carries a lower interest rate, assuming of course you have a good credit score. Use my link, if you are serious about reducing consolidating debt.
In sum, it’s very easy to get into debt, but harder to get out of it. However, if you are spending way less than you earn, have a payment plan and stick to it, and reducing your expenses, you will be able to get out and stay out of debt.
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