Outside of mortgages, the most common debt are credit card debts, car loans, and student loans. Being in a constant state of debt can mean that, should disaster strike, you might not be able to stretch your finances enough to keep going. However, while it is hard work, it is possible to get out of debt. Whether you are experiencing financially tough times or simply want to improve your financial situation and save up, there are some good habits to get into.
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If you find yourself getting into debt, it can feel like a hole that you can’t dig yourself out of. According to one study, over 50% of American respondents reported spending more or equal to what they had earned each month.
Pay More Than the Minimum
While it seems counterintuitive, paying more each month towards your debts is the most effective way to get out of them more quickly. Doing this will speed up the payoff process, so you’ll be paying that debt for a shorter amount of time. This means that you will save on interest in the long run. However, you should ensure that your loan doesn’t charge any prepayment penalties before trying this out.
If you have many debts, try paying off the smallest ones first with any extra funds you have, while paying the minimum amount on larger debts. Once the little debts are gone, you should have more money freed up for other debts and expenses.
Set a Strict Budget
Paying off your debts typically requires having “free money”, but for many people, this isn’t a reality. There are two ways to find the funds. You can either cut down on your spending or earn more in the way of income.
Sitting down and setting a strict budget will make you far more likely to find the money you need to pay off your debts. Some people go cold turkey, and completely cut out any non-essential spending for months until they’re in a better position. Others are less strict, but any budget is better than none.
Earn a Little More
It’s perhaps easier said than done, but finding a side hustle or extra part-time job can provide the extra funds that you need to pay off your debts. Seasonal jobs are especially great for this, as they are temporary by definition, so you aren’t tied to a contract for any longer than a few months.
If you find that you can keep up your side hustle, then great. But even if it’s something you try for a few months, the extra flow of income can be sent directly to paying off your debts and can really help out.
Hire a Professional
Depending on the type of debt you have, it may be wise to hire a professional to help you organize your finances. For example, tax resolution services can be incredibly helpful if you’re behind on your taxes or have other tax problems. They can help you to set up a payment plan and pay off your debt.
This is a contributed post.
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