Getting out of debt – part two

Getting out of debt – part two

Money is not a conversation you grow up hearing around the dinner table. Parents are stressed, young people are even under more stress than ever. The question is, how do we overcome this plague of the 21st century?
You may have landed on this page from various sources (Google, Pinterest, Facebook and so on). If you haven’t read part one of this article, please click here to go to it. For those who are familiar with the previous post, you are now familiar with the concept of using a budget to get a grasp of your finances. You work so hard for your money; you deserve to know where it is going. You deserve a break, and you deserve to be happy.

Budgets are not as scary as you may think. They are not there to make your life miserable. Budgets are only there to give you a visual idea of where your hard earned money is going. To see how much you are paying for different things in life. How much you are spending on interest on your credit cards, car loans, and all other debts. Am I beginning to sound like a budget advocate? Yes, only because budgets work for those who are committed to getting out of debt.

Now that you have a pretty good handle on the direction of the money you are spending, you also know how much money you have to clear your debt. Now we need to make another list (I know, another list)? This one won’t be as long as the budget but brace yourself because you may need to go for some fresh air after you see how much you owe. Write down every single creditor, the total amount owed to each creditor, minimum payment, and interest rate. Next, you need to make a plan to tackle the debts.

Consolidate your loans.

One does not get out of debt by racking up more debt. This is true in many cases, but when you are struggling to make ends meet, and you are paying a massive fortune on interest every month, then a consolidation loan might just give you some breathing room. Let’s say you have a couple of maxed out credit cards and you are chasing the wind trying to keep up with the minimum payments. It does not hurt to go down to your bank and talk to an advisor about your options. You may be lucky enough to walk away with a line of credit which has lower interest rate compared to credit cards. Not all of us are this lucky though if you cannot qualify for a line of credit then ask for a loan. Either option will give you a much better interest compared to what you have on existing credit cards.

Switch to low-interest cards.

What if the bank tells me that I do not qualify for a loan? The simple answer is that you still have options. These options may not be as suitable as the loan, but they are still options. Talk to your credit card issuers about switching to lower interest credit cards. Some Credit card issuers charge well above 19% interest while they have other cards that have as low as 11% interest rates. You can continue to make the same amount of money for your monthly payments. The lower your interest rate, the more money is going towards knocking that mountain of debt down.

As a quick example, assuming I owe $5,000 on one credit card with 19.99% interest and I have $100 to pay each month. It will take me 109 months to pay off the debt. I would have spent a total of $10,830.34 to cover the initial $5,000. OMG, no wonder I can’t seem to move ahead in the money game. Now let’s use the same scenario, I owe $5,000 on a credit card with 11% interest rate, and I only have $100 to pay each month. This time it takes 68 months to pay off the plastic and be free of this creditor for good. And to my surprise, I have only paid a total amount of $6,719.09 to get rid of the debt. I have saved on interest $4,111.25 and 41 months that I won’t have to lose sleep over this one plastic.

Get a loan from family.

Ask a family member to lend you money to pay off the vampires that are sucking the life out of you. Oh boy, did you just say that I should ask my family to help me out? Are you crazy? I know, we live in a society where money talk is a taboo. Money, sex, and a few other things are not topics you hear around the dinner table but they are very important, and some of us wish our parents talked openly about these things. You are probably saying to yourself; I do not want my folks to know that I am struggling. You will not know who is willing to stretch out a helping hand until you ask. A personal loan from a family member may come to you interest-free, this could mean that you will save anywhere from $1,000 to $5,800 in interest alone. Here is where working with the family gets better. The family member lending you money surely has a service they are paying for that you can offer to supplement the loan payments. Services could include lawn care, pet sitting, babysitting, running errands, painting their property, assembling IKEA furniture… the list goes on, you will need to use your creativity here.

Give yourself a quick win.

I can vividly recall how I felt the first time I looked at the list showing how far I was in debt. To be honest, it felt like I was beginning to work on something that would never have an end. I could not see any reason to stay motivated to work that hard to pay off debt. You will need a quick win to build momentum and stay focused. You will need to come up with about $1,000 to give a good blow to one loan that you chose to pay off first. Go through everything that you have in your home. People will pay money for things that appear to have little value to you. Use your local classified and eBay to sell items that you do not need. I made over $2,000 selling old electronics and furniture on my local classified. Give it a try and share your experience. We will be thrilled to hear from you. Stay well!!

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