For the majority of people, debt is a fact of life, something that we grow accustomed to and almost expect to have. The levels of household debt in the US are seemingly ever-rising, and debt is somewhat normalized in the culture.
In some ways, there is nothing wrong with this; there is such a thing as good debt, and there are times in life when your income simply isn’t sufficient to cover the basics, and credit helps you to bridge a difficult financial time. If debt is well-managed – and preferably accruing as little interest as possible – then it can be coped with. The situation is less than ideal, but it’s tenable.
However, for the vast majority of people, debt isn’t tenable. If you reach a point where your debt repayments are so large they are dominating your income, or your debt is preventing you from embracing the life you want, then the only possible solution is permanent debt recovery.
This, however, is never simple
It would be nice to think that recovering from debt is an easy process, like flicking a switch: you can suddenly decide that you don’t want to be in debt anymore, alter your budget, make your repayments, and the entire problem will be resolved relatively quickly. And, in some cases, this is precisely what happens: people experience a kind of “light bulb” moment, and make changes that set them on the path to resolving their debt problems once and for all.
However, this is far from the standard experience, and many people find themselves attempting to rid themselves of debt, stalling, and then needing to start all over again in future. Again, this is understandable – life happens, and sometimes debt slips from being your top priority – but it can trap people in a pattern of wanting to be free of their debt, but never quite managing it.
To address this issue, below, we’ve put together a number of steps that can truly set you on the right path once and for all.
Step One: Understand the causes of your debt
It may be unusual for the first step to debt freedom to not involve crunching the numbers and working on the debt itself, but this step is actually crucial to how you will proceed in future.
Debt doesn’t just happen; it happens as a result of a stimulus. Perhaps you had children and struggled with childcare costs; had a family emergency that you had to rely on credit to manage; or you have a tendency to overspend. To truly conquer debt, you need to establish the cause of the deficit in the first place, and rectify it as a first priority.
Why should this be your priority? Simple: you can only halt the cycle by cutting off the source of the problem. You could – and should, in time – trim your budget, talk to your creditors, consider loan consolidation options from a company like DebtConsolidationLoans.com today, for example. You can perhaps even look to increase your income, but these measures don’t address the underlying issues.
It’s particularly important that you are honest with yourself about the cause of your debt, but without judgment for your past actions. It is what it is; so accept, and move on. Many people struggle with annoyance at their past behavior during this stage, but try to avoid this, and focus on productive solutions to the issue.
Step Two: Prevent the cause of your debt reoccurring
- If you tend to overspend, cut up your credit cards.
- If you had to turn to credit to cover an unexpected expense, look to build up an emergency fund for such a purpose.
- If your debt was due to a simple lack of funds to cover basic expenses, look to increase your income.
The reason you should implement this step – before you have even truly examined your finances – is to give you a fresh start. This means you can then move on to…
Step Three: Obtaining the figures
Dedicate an afternoon to compiling a spreadsheet that contains the following information:
- The name of each creditor
- The amount owed to each creditor
- When the monthly payment is due for each creditor
- What the interest rate is for each debt
Step Four: Prioritizing your debts
Most people find that prioritizing debts is hugely beneficial to their overall repayment strategy. There are a few different ways to do this: one is to prioritize smaller debts, so you can experience the satisfaction of paying them off, and thus want to continue. Another technique is to prioritize the most expensive obligations; i.e. those with the highest interest.
There’s no hard and fast rule here, so go with what feels right for you, and assemble all of your debts into a number priority order.
Step Five: Explore your options
Before you set a new budget and debt management plan, consider:
- Talking to your creditors and asking for interest to be frozen while you repay the account
- If you have a sum of money available, you can also offer a “full and final” payment that is a percentage of the total amount owed. Creditors do not have to accept this, but it’s worth a try.
- Look into options that can group your debts into more manageable payments, such as consolidation, or transfer your credit card balances to a 0% interest card.
Step Six: Configure your new budget
By this point, you should know what you owe, who you owe it to, and when each payment needs to be made. You should also have an idea in place to help prevent you needing to rely on credit in the future. As a result, you’re ready to compile a new budget, dedicating as much as you can afford to debt repayments.
Final thoughts
The steps above aren’t easy, with Step Three often presenting a particular issue; everyone struggles with seeing the bare figures in black and white. However, these steps are the ones you need to take if you are to address your debt once and for all, so while they may be scary, try to see them as the starting point towards the financial freedom you want to enjoy in future.