Not all of us make six figures which means paying off debt can be tough. But it’s not impossible. Our next series of articles will show you how to get out of debt, even on a low income.
Debt should be considered an emergency. And like any emergency, the longer you wait to deal with it, the worse it gets. So you can’t wait for the next big raise, the next new job, the winning lottery numbers to help you get out of debt.
Tackle it immediately! Don’t let the emergency get worse. You don’t have to be making big money, or even more, than you are making right now to at least start paying off debt.
Cost of debt: If you already have debt then probably one of your biggest monthly expenses is dealing with that debt. The best way is to just get the people you owe money to forgive some of what you owe. Sounds crazy but it works surprisingly often.
If you owed $30,000 and told your bank that you can only pay back $10,000 or you’ll have to give up the card. They would rather get something over nothing and will either flat out agree or come with a counter offer like $15,000 and reduce your limit. Either way, it’s a debt reduction.
The whole picture: First thing is first. You need to sit down and figure out exactly how much you owe on your debts, how much is going out, and how much is coming in. There are free financial software and tools to track your personal finances. You can easily manage your entire financial life in one place and reach your financial goals faster. This will help with your long-term financial strategy, calculate your net worth, set a budget, manage investment accounts, and plan for retirement.
While it might be a scary to tally up how much debt you owe, but it’s the first step in eliminating it. Compare how much is going out (all of your monthly bills and expenses) just using the minimum payments on the debts, not the total and how much is coming in (all of your income)
Cutting costs: If you are thousands of dollars in debt, making coffee at home and bringing your lunch to work aren’t going to be enough to fix the situation. We’re going to do those things too, but they aren’t enough. You need to concentrate first on the significant expenses.
Reduce your interest rate
If you have credit card debt, your interest rate may be above 20%. In that case, you should refinance and lower your rate. That is one step towards cutting your interest payments. It is that easy. So if you’re a hardcore procrastinator than just give yourself 15 minutes to create some breathing room in your monthly budget.
Next week…housing and transportation.