Got Into Debt? Start Getting Out Of It In 5 Steps

Debt management can be tricky to navigate. Here are some baby steps you can take to get out of it.

There are times in life when we find ourselves in debt. When that happens, it's important to remain calm and work towards being debt-free. If you're currently in debt, fret not — we are here to help! There are practical steps you can take to slowly (but surely) pay them off. Here are 5 steps to help you start getting out of debt: 

1. Draw up a plan

Before you start taking money out of your wallet, it is important to first draw up a game plan. Take a pen and a piece of paper, and write down exactly what debts you have and how much is needed to pay them off. Then, rank your debts in the order you want to pay them off. For example: from the lowest interest rate to the highest interest rate, or from the smallest amount of debt to the biggest amount of debt. 

Next, create a budget against your current cash flow to determine how much you can afford to pay off every month. If you have multiple debts, decide how much money you will use to repay each debt.

2. Cut down on unnecessary expenditure

Now that you know what to do, a simple way to speed up your debt repayment is to reduce unnecessary expenditures. This helps to increase your savings so you have more money to repay your debts, and that will cut down the duration needed to completely pay off your debts. 

To do so, you will have to list out all your monthly expenses and split it into fixed and variable expenditures. Since fixed expenditures are tougher to reduce, see how you can decrease your variable expenditures. Some adjustments you can consider include dining out less, cancelling subscriptions that you don’t need, or going easier on the monthly retail therapy.

3. Try to increase your income

If reducing unnecessary expenditures isn’t feasible or sufficient enough, you can also look into ways to increase your income. There are two ways to do so: you can either find a new job that pays you a higher salary, or find side hustles you can work on apart from your regular job to have that additional income.

4. Focus on one debt at a time

The aforementioned 3 steps should be enough to help you gradually pay off your debt. However, it gets a little trickier when you are juggling multiple debts. 

If you find yourself in that situation, just focus on clearing off one debt at a time. Look back at your list and decide on the debt you want to clear off first. 

Instead of splitting the amount of money you’ve set aside to repay your debts equally, allocate more money to that particular debt while paying the minimum amount for the bigger debts. After you finish settling one debt, move on to the next bigger one while paying the minimum amount for the remaining debts.

5. Consolidate your debts

Having multiple ongoing debts can get quite confusing for you to keep track of your debt repayment process. If you’re struggling to keep tabs on all your debts, here’s a trick for you: take up one loan to pay off all the debts you have. 

We know. It sounds incredulous to take up another loan when you have multiple ongoing ones. But hear us out! By adopting this strategy, you can essentially combine all your debts into one repayment plan. You can focus on repaying this one debt. This makes it easier for you to track your debt repayment process. 

Additionally, taking up this one loan can be advantageous for you if you find a loan with a lower interest rate than your other debts. This means you are essentially paying less money in the long-run.

Don’t miss a due payment!

No matter which method you choose to use, the MOST important step to clearing off your debts is to not miss any payment that is due. It is crucial to at least pay off the minimum amount due every month so as not to incur hefty interest amounts. 

This is especially so if your loans run on compound interest rates. If you miss payments on those loans, your debt may end up snowballing into an even bigger amount than you initially had to pay off. 

With these 5 steps, you’re now on your way to being debt-free. To find out more about how you can better budget your personal finances and take control of your money, check this article out!