Sometimes debt can just be an unintended consequence of too much holiday spending or overspending any time of year. Many people try to get out of debt, but they give up. That doesn’t have to be the case.
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We all love the end of the year. For most of us, 2016 has been a long tough year. We are ready to take a break from the daily grind of our lives and move into a place where we have no worries and just take a needed break. No worries until we remember we have some debt that is hindering us, that is.
We all have debt. This is a part of our lives. When debt is managed well, it is a stepping stone that enables us to improve our life and get things accomplished. However, if debt is not managed well, it can become a stumbling block and hinder our progress rather than move us forward.
Managing your debt on your own can become a challenge especially when you are not sure which is the good debt and which the bad debt.
Related: How to manage debt efficiently
These few simple tips could get you on the right track:
Stop taking out bad debt
Debt is bad if you are using it out to fund a lifestyle that you cannot afford. This will include financing furniture, televisions, credit cards you don’t need and driving a car you cannot afford. Do not take out any more debt and focus solely on the debt that you currently have.
Create a budget
Developing a budget identifies your income and your expenses and is crucial to getting out of debt in a short period of time. Be strict with your budget and take out any unnecessary expenditure allowing your net income to be bigger than your expenses. The goal is to increase your surplus and use that money to pay down your debt.
Pay off bad debt first
Bad debt is debt that is expensive. Expensive debt is debt that has a high rate of interest, such as credit cards, higher purchase agreements at those furniture store cards and unsecured loans. Try and pay these off as quickly as possible and when you have paid it off, cut up the card and never use it again.
Related: Communicating through the debt dilemma
Use the surplus to pay off other debt
Once you have paid off debt, use the cash you were using to pay off that debt and put it into your other debt. Your budget for debt won’t change as you were using the money to pay off that debt anyway. You will be amazed at how quickly you will get yourself out of debt. Once you are out of debt, spoil yourself with a dinner at a fancy restaurant.
Start saving for your future
Before you know it, you will be out of debt and you will have a huge surplus every month. Now is the time to start looking at your future. Set up an emergency account for unforeseen emergencies (try keep approximately three months of income in a cash account), start saving for things you haven’t been able to do because you were in debt, such as travel. Most importantly, though, ensure that you are saving sufficiently to enable yourself to retire with financial freedom.