Debt is a nightmare that consumes your valuables, destroys your meaningful relationships built over time and causes you mental stress. Debt also reflects the negative even disastrous consequences of your bad decisions and uninformed actions in what concerns finances. Whether you fell into a debt spiral because of underemployment, reduced income, little savings, medical expenses, divorce, poor money management or a vicious habit like gambling, this unfortunate situation keeps you awake at night and for good reason. You might be surprised to know that some people do not worry as much as you would expect about drowning in expenses. In fact, they feel comfortable staying in debt because it allows them to keep up appearances, it fuels their addiction for material things, they refuse to learn how to manage finances properly, they do not make budgeting a priority, they do not want to make sacrifices or they no longer have hope. These people will probably never take the first step towards financial freedom because that shiny card truly represents the symbol of temptation in this case.
Common mistakes to avoid when paying off debt
Everyone knows that while getting in debt is quite easy, removing financial burden is a challenging undertaking that demands long-term commitment and becoming familiar at least with the basics of debt management. Many people overlook the second requirement and they end up making the same mistakes that prevent them from reducing the financial stress that makes getting a good night’s sleep almost impossible. These mistakes refer to not establishing a well-thought plan from the very beginning, not budgeting on a regular basis, continuing to accumulate debt by using that tempting shiny card, not identifying the root of the problem, not creating an emergency fund, returning to those bad spending habits, tackling multiple debts at once or paying the wrong debt first and becoming the victim of a debt relief scam. In order to avoid making these mistakes, you should get rid of the credit card (bury it in the garden or put it in the freezer; use your imagination), keep a close eye on your budget and try to save a few dollars whenever possible, eliminate unnecessary conveniences from your house until you can really afford them like cable TV and do not hesitate to ask for help.
Create an intelligent debt management strategy
The best approach is to set aside as much time as you need in order to determine exactly the amount of money you owe and figure out how you intend to pay it off. It might seem difficult and scary but try to see the bigger picture instead of getting lost in unnecessary details. The next step is to make an objective comparison between your monthly income and expenses. You probably ended up in debt due to poor money management, which led to expenses and bills, namely the money going out exceeding the income, representing the money coming in. Therefore, you should prioritize budgeting and make sure that you stick with your strategy until you break the cycle of debt. Obviously, the main goal is to earn more money that you spend so that you are left each month with a decent amount of money that you can use to pay off current debt or debts. You can use apps to keep track of your spending or anything else that might help you make the process as smooth as possible. You might want to consider cutting costs related to housing, transportation, food, shopping, subscription services, utilities and more.
Earn extra money in order to create an emergency fund
When it comes to making some extra money, you have several options at your disposal, from working overtime and taking a second job, even if just part-time, to starting a side hustle by driving for Uber or becoming a babysitter and hustling in your leisure time by starting an online business. Earning money is not impossible; it just requires skill and imagination. After you reduce expenses and increase your income, getting out of debt should no longer seem impossible. Falling behind with repayments and other financial obligations is normal. Fortunately, you benefit from various methods to pay off your debt that you should not overlook. These involve DMP, DRO, IVA and bankruptcy, which might not be to your liking but if you see the positive side, it does enable you to start again. Of course, you will have to give up on your current assets in order to write off all current debts and reboot your financial life. However, usually, people view this as a last resort, which means that consider it only then other methods of enjoying financial freedom fail lamentably. Thus, we do advise you to analyze the perquisites and drawbacks before making such a decision.
Consider various methods to become debt-free
Moving on to the strategies mentioned above and starting with individual voluntary arrangement (IVA), it represents a strategy that allows you to pay off debt in your own way in a certain period, generally a few years. As for the remaining debt, if you do not manage to pay it off by the end, it should no longer represent one of your financial concerns. IVA advice can remove the financial burden ruining your life, but you have to be aware that once you choose to sign the legally binding agreement you cannot change your mind afterward. Backing out of this debt management solution no longer represents an option once you commit to it. The wisest approach is to examine your current financial situation and analyze the advantages and disadvantages that come with individual voluntary arrangement, just like the bankruptcy.
In what concerns debt management plan (DMP), you can arrange a monthly payment that you can afford in order to gradually pay back everything you owe. This option might prove to be adequate for people who do not have priority debts like personal loans, overdrafts or store cards. Finally, yet importantly, debt relief order (DRO) represents the best solution if you do not own many valuable assets and if you earn a low income that does not help you to make your monthly income exceed your monthly expenses. It practically freezes ally our debt for approximately a year and if you still cannot afford to pay it off, it writes off.