How to become free of debt
There is no greater burden than that associated with been held back with debts and facing the risk of losing your precious assets you used as collateral. It is not only emotionally sapping, but also extremely embarrassing. Whether it is a loan, overdraft or a mortgage facility, the mere thought of been indebted usually gives one sleepless night. The truth however, is that there is always a way out of such debt burden. No need to panic, just stay calm and start implementing these step by step strategies, and before long you will be out of debt. No need going through 2018 still wallowing in debt.
Know your debt profile
Having a firm knowledge of your debt profile will give you a good start on the way forward towards clearing them. Sit down, take a pen and a piece of paper and starting jotting down all your debts, starting from the highest to the lowest. Most debts come with interest, whether it is a bank loan or a loan from money lenders. The only exceptions are friendly loans from friends and family members. These too must be included in your detailed list of debt profile. The longer you allow this debt to accumulate, the more difficult it becomes to clear them. So know the exact amount and the people, group or bank(s) you are indebted to.
Know your expenditure
It is not enough to know your debt profile. You also need to know your expenditure. It is impossible to clear your debt if your expenditure is always exceeding your income every month. Know what you spend money on and begin to cut off some unnecessary expenditure. When you list out some of the items you spend your money on, you will be able to prioritize your expenditures. Stick to only expenditures that are food related.
Cutting your expenditures
Once you know what you are spending your money on, you will be able to decide what to continue funding and what not to. If you can cut down on shopping, buying of recharge cards, DSTV subscriptions, travels and clothing, it will be absolutely helpful. There are expenditures that come in form of needs, while others come in form of wants. Let go of the later and cut down drastically on the former. You can’t be in debt and still get involved in unnecessary expenses.
Prioritize your debts
You know your debts, your expenditures and you have equally started cutting down on some of the expenditures listed. The next stage in your fight towards achieving debt freedom is to prioritize your debts. Due to the cutting down of your expenditures, some extra cash would have been saved for servicing your debts. Add these savings to your normal monthly earning and start servicing your debts based on the priority you listed. You must focus on debts with higher penalties and interest rates. Friendly debts that don’t carry much burden will come last. If you have incurred multiple debts, applying this technique means your debt will not be increasing but reducing over time.
Make a budget
It is standard practice to always make a monthly budget. A budget usually contains two key parameters; your income and your expenditure items for the month. After prioritizing your debts, the next most crucial step is to make a practical budget. A budget can only be practicable if it contains items that are realistic and not abstract. The budget should not plunge you into further debts, so look at it critically and make amends where necessary. The budget should be able to help you take control of your debt.
Talk to your Debtors
Although this may sound very laughable, but it can be hugely effective if approached rightly. There is usually room for rescheduling bank loans after extensive discussion with the bank loan officer with the approval of the bank manager. Rescheduling bank loans come with extra interest. Defaulting in payment of cooperative loans can be approached in similar ways. Talk to the cooperative president and share your limitations with him. There can be special concessions based on your ability to fulfill certain conditions.
Determination and self discipline
Now that all is set, all you need to do is ensure that you meet up with your expenditures. You do not want to renege on your agreement. So you must self disciplined and determined in your goal to ensure all debts are cleared within some set time period. Money is a mysterious resource, and the urge is always high to keep spending rather than using it for more useful purposes like debt servicing. You must ensure you keep yourself in checks by keeping track of your progress via a financial record book.
Build a safety net
This means creating a platform for saving for the rainy days. As you clear up your existing debts, it is only wise that you save up quite a substantive amount of funds for the future days. This way, the chances of future debts will be completely eliminated. This is not an easy principle to achieve, as the present economic situation in the country means people hardly have enough to spare, and even keep in savings. It requires a deliberate plan of action which may involve some form of sacrifice on your part.
As you implement these step by step guides in the coming days, some of the principles may prove a bit tougher than others, but never get discouraged, because nothing good was ever accomplished on a platter of gold. Keep moving until the final debt is eventually paid up and the burden is lifted. I hope and desire that 2018 holds good fortune for you as you step into the New Year debt free.