If you are looking to get out of debt, the most important item that you must do immediately is to stop spending on credit. It is the most critical item that you can do today. Once you accept that to reduce the debt which you owe, you must reduce the amount you are putting onto credit to zero, it is only then can you take back control of your finances and work out how you are going to move forward and pay back all the debt which you owe.
It is not going to be easy if you have any amount of debt, the first step is creating a budget. You need to know how much money you have coming into your home and how much you are spending. Once you have this information you then need to look at the amount of debt you have, create a list of all the credit cards and loans that you have, include information like the interest rate, the amount you owe and the minimum monthly payment that you need to make.
Creating A Spending Plan
Knowing how much money you need each month to pay the bills and incidentals is one thing, but sticking to it can be something completely different. It is important that you know how and what you are going to spend on and for many, leaving the cards at home and only taking cash is a great way to stop over spending, if you haven’t got the temptation there.
A spending plan is your budget, what you need to buy and spend on during the month; it can be the shopping you need, or your weekly spending money. Knowing what money, you need and having that money available will reduce the risk of putting something on credit.
Once you know how much money, you have coming in and how much you need to pay your bills including items like your shopping money, you then need to see what money is left over.
This surplus money will be ideal to use to pay off more money towards your debt so you end up paying less interest, saving you money long-term.
Don’t Take Out More Credit
Don’t take out more credit, if you can’t afford the credit you have, creating more debt isn’t going to make it any easier. However, you might be able to consolidate your debt into a loan, but only if the interest rate is lower than what you are currently paying.
If the rate is higher and the monthly amount is lower, then the term has increased, meaning you will pay more and it is not worth the extra payments you will need to make.
It is possible to transfer some credit card debt to a 0% deal, but there is normally a fee associated with this added on the debt, this increases the amount you owe. The fee will depend on the amount of debt that you transfer.
When you clear off a credit card don’t be tempted to close that account, it can harm your credit rating, keep that account open but just don’t use the account. However, if you are not good with credit and can’t be trusted with a credit card and you are not looking for any further credit in the future, including mobile phones or mortgage then closing the account will reduce the risk of building up credit which you can’t afford.
It is possible to live a life without credit, it can take time to learn that if you want something it is possible to have it but only after you have saved up for that item. It is a very different concept, we have grown up in a climate where getting credit for something is an acceptable practice and changing that attitude takes time. You’ll be met with objections and people trying to persuade you to have some form of credit, it is hard to say no sometimes but it is possible to live credit free.
Therefore, if you are looking to get out of debt the first item on your agenda is to stop spending on credit.
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