Debt Management Plan

Step By Step Method To Pay off Your Debt And Be Debt Free

Debt is an amount you owe another person that you are under obligation to repay within a specified time. Sometimes, the thought of debt can be overwhelming especially when it is the last option. The truth is, debt has become the reality of many people, and it is hurting their financial health consciously. 

A good debt provides a return on investment (risk) such as a sizeable student loan for an employable course or a small business loan for scale up. Bad debt is one that puts you at risk of losing your personal belongings and livelihood. Typically, a debt can also be short term (requires repayment in less than 3 years) or a long term debt (has a repayment period over 3 years).

If you are in debt, don’t panic. Just about everyone has been in some form of debt in their lives; from small loans to mortgages, credit card debts to huge student loans. Loans are not free money, at least it would look like one in a moment but you will gnash to pay them back later, and it isn’t pleasant.

However, it is possible to become debt free and build savings again. It is not a myth nor is it for some special people. With good money advice, discipline and consistency, you can also live a debt free life too.

What are the steps on how to start your debt free journey?

1. Sort out your debts

The first step is to get a clearer view of all your debts and exactly how much you owe. When you are not sure of the amount of your debt, visit the website of the creditor or phone them to ask about it. Never try to understate your debt. You can talk to a credit professional for guidance.

2. Prioritize your debt

Now that you know your debt depth, you have to prioritize which one to pay first, with a good reason. Let’s say you rent is almost due, you have utility bills, taxes, car repayments or students’ loans to pay. You may have to decide which of these debts have imminent consequences for delayed payment in the short term, and repay that first.

3.Think of a debt repayment plan

Once you know your total debts, devise a debt repayment strategy. Considering your financial situation, you can decide to make small payments to clear your debts. However, this plan would mean that, your debt balance would be collecting interest as each month passes and your debt may never go away. Alternatively, you can pay large part of your debt at once or in few months. This will save you from compounding interests.

4. Start a saving plan

Now you got a plan, you need money to honor it. You have to start saving towards repayment. One thing with debt is that, the longer you delay repayment the worse your financial situation becomes. So automate your debt repayments as this will ensure you don’t forget, and be committed to get rid of it as soon as possible.

5. Speak to your creditors

There is no harm in admitting that you have been overwhelm with your debts. Be truthful about it and try to renegotiate the terms with your creditors, they may be willing to discuss lower interests and new payment terms. Creditors are always ready to recover part of a debt than write it off. Where all options fail, you may want to file for bankruptcy to alleviate your sufferings.

6. Try Debt Consolidation

Debt consolidation method
Debt consolidation

When you are overwhelmed with repayment of separate debts with exorbitant interests, apply for a debt consolidation. This allows you to combine all your separate debts into a single larger debt. You then have to commit to one monthly debt repayment at a possible lower interest rate.

What are the traits and attitude of debt free people?

They set goals: If you don’t have a goal, anything goes. Almost every goal requires some monetary commitment. Think of marriage, education, vacation or buying a house. When you have S.M.A.R.T goals, you can’t afford to be free with your spending or borrowing for wants. You need to be debt free with a good money plan to achieve these goals.

They have self-control: Debt free people stick to their budget plans. They try to avoid impulse buying at all cost. To achieve this, they don’t buy stuff because it feels good to have them. Price tags always mean a lot to them than brand names, as they are never ready to swipe credit cards around for fancy stuff to post on social media. Save that money when you don’t have a use for it, that’s what they do.

They are confident: When it comes to spending decisions, debt free people consider durable stuff. They are confident that what they spend money would not accumulate debt or be a liability. They don’t really care about what others think about what they wear, drive or eat as far as creditors are not on their necks. They stick to their money plans.

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