Getting out of debt is a considerable challenge. It’s not something that you can achieve in a day. But, following the right tips, you can slowly get out of financial trouble and stay out of it from now on. Check out these three important tips that anyone in debt should know.
1. Make a Budget
A budget may sound too simple of an answer, but sometimes simple methods work best. Start by going over your earnings for the month. You can do this on grid paper or download a budget expense app on your phone. After figuring out your income, tally up your fixed expenses like rent, mortgage, car payments and insurance. After that, get estimates of your variable expenses — these can shrink or grow.
These are some variable expenses to consider:
- Eating out (restaurants, takeout, coffee shops)
- Transportation (gas, bus fares, rideshares)
- Personal care (haircuts, manicures, makeup)
See how much of your income is left over after subtracting all of the expenses. If it’s not enough to make any significant contributions to your debt, you need to shrink some of your variable expenses. Sticking to these budget guidelines will help you dramatically increase your savings.
2. Use Cash
Using plastic is not so fantastic, especially for basic shopping trips. You shouldn’t be pulling out your credit card when you’re buying groceries, toiletries or cups of coffee. Credit is borrowed money that comes with interest. And you dig yourself deeper into debt the longer that you ignore it. Depending on credit is a quick way to put yourself in a tough financial spot.
It’s much better to use cash for your simple shopping needs. It’s not borrowed. It doesn’t come with interest. Another good reason to put your card away is that paying with cash hurts — the loss feels greater because you watch the physical bills disappear. So, you won’t feel as compelled to overspend.
3. Talk to the Pros
If you feel like your personal efforts aren’t doing much to whittle down your debt, you should turn to a professional for help. A licensed insolvency trustee offers multiple services that can give you long-term relief for this difficult problem. They can assist their clients with credit counselling, filing for consumer proposals in Canada and much more.
What is a consumer proposal? It’s a legally binding agreement made between a debtor and their creditors promising to pay a certain amount of their total debts within a maximum of 5 years. It’s considered to be a better alternative to filing for personal bankruptcy because assets like your house or vehicles are unaffected by the process.
Another benefit is that the debt amount is lowered so that you can manage a repayment plan. Once the agreement is made, you’re freed from collection calls and wage garnishment. Any legal action that creditors have taken against you ends. It’s no wonder consumer proposals are quickly growing in popularity with people struggling with their finances.
Don’t give up just yet. You don’t have to accept defeat and believe that you’re in debt forever. By taking the right steps, you can get out of the stressful situation relatively unscathed.