Credit is a very powerful tool, but like anything, if it’s used the wrong way it can cause more harm than good.
Unfortunately, when you get into debt, the situation can quickly snowball and cause you to get into a tricky situation.
If you’re at the point, where you’re using credit cards to pay off other credit cards, then you might have a problem that you’re going to need to address before things get much worse.
Fortunately, there are some simple steps that you can follow that can quickly turn the situation around to help you become debt-free.
3 Ways To Quickly Get Out of Debt
1# Identify Your Debts
Not all debt is created equal. There are both good and bad debts.
Good debt is normally something like the mortgage on your home. A house is considered an appreciating asset and therefore you’re using your money to invest in something that gains value.
On the flip side, credit card debt is one of the worst forms of debt that you can have. It’s generally used on things that are not essential items. Most of these things are luxury items or disposable in nature and are effectively just expenses.
One of the first steps should be getting rid of your credit cards and certainly not adding to your current pile of debts, before then assessing your other debts.
The way to identify which debts are burning a hole in your pocket and need to be addressed is to look at the interest rate you’re paying and the overall debt amount.
Things like credit cards, personal loans, and car loans are particularly bad as they have high-interest rates.
The high-interest rate debt is normally the thing you need to address first and that can often come in the form of credit cards that have snowballed or even a car loan.
However, you can also look at the snowball method, which aims to pay down the smallest debts first and then build momentum.
Start by prioritizing the debts that need to be paid down, then you can budget.
2# Find out where your money is going
The next thing to do to get out of debt is to understand where all your money goes.
The vast majority of people spend every cent they earn and don’t really have any understanding of where their money is going each week or month.
Taking responsibility for your spending habits is an important step.
To do this get a copy of your credit card statements and your bank statements. Go through and work out where your money is being spent, so you can then access if it is really worth it.
These days there everything is seemingly a monthly payment in some form, and these recurring costs are one of the first things to note.
These include things like gym memberships and tv streaming services which you can quickly and easily cut out of your budget if you need to.
If you’re using the likes of buy now, pay later services, you have to quickly cut these off as well.
You might find that you spend a significant amount of money on eating out or on alcohol and if you want to reduce debt these types of expenses have to be cut back.
Fortunately, there are a range of tools you can use to better track where your money is going and then allocate
3# The jar method
Managing money is tricky at the best of times, and when you are just tapping cards all day you don’t really see where the money is going. To solve this problem we can adopt the jar method.
Do you remember the way your grandma used to manage her money?
Years ago our grandparents would physically allocate their budget into jars. There might be a spending jar, a savings jar, a holiday jar, a food jar, and the mortgage jar.
The jar method works, by allocating all your money upfront and only spending what you can afford.
You need to prioritize paying down the debt by as much as you can and take that money directly out of your income and pay the debts first.
Once debts are paid and essentials such as rent and food and some savings – only then can you spend the rest.
A great way to do that is to start using a debit card instead of a credit card. That way you simply transfer your money into the debit card account each week and you know exactly what you can spend.
The road to getting out of debt is all about taking responsibility for your spending.
The great thing is there are now a number of tools you can use to help get you there.
Read Also:
- Will a Cash Advance Loan Affect Credit Report?
- 6 Ways to Use Your Credit Card To Minimize Outstanding Debts
- Steps on How to Start Your Business Debt-Free
Author: Luke Fitzpatrick
