Getting out of debt is one of those things that are easy to understand on paper but hard to do in real life. After all, getting out of debt means changing your attitude towards money. It also means making some uncomfortable changes to your monthly financial allocations.
For many people, the amount of adjustments and the kinds of changes needed to get out of debt are just too much. Many would prefer a more ‘gradual’ approach to getting out of debt. Sadly, for most people, getting out of debt has to be approached on a ‘cold turkey’ basis. Or else they would just continue to drift financially without making a serious debt on their overall debt.
If you don’t want to get buried under a mountain of debt which you can’t get out of, keep the following three tips in mind. They will not only get you out from under all your financial obligations, they may also help prevent any huge accumulation of debt in the future. Just like with most other changes in a person’s life, you can only get results when you decide to take action and continue to take action.
Pay yourself first
When you get your paycheck your first thoughts probably go to who you should pay first. Should it be the phone company? Or should it be your landlord? How about your credit cards? Maybe you should spend it on that watch you’ve always wanted to buy? The bad news is that if you are serious about getting out of that debt hole you are in, you better start with the idea of paying yourself first. Pay yourself for the hassle of working. Pay yourself for the stress you’ve put up with. You can do this by setting aside cash first for the things that will give you peace of mind. This, of course, is debt servicing.
Set a high target every month for debt servicing
Once you have set your mind to paying yourself first, you have to now make a decision as to which debts get priority. The simple rule is: pay off high value debts that have the highest interest rate. So if you have a $5000 credit card debt with a card that has a 18% APR, devote more money to paying that than your other debts. Keep prioritizing until you knock out high cost debt. Then move on to lower cost debt.
Retire your card while you are paying it off
If you were in a sinking boat and you are trying to pump water out of the boat so it doesn’t sink, the last thing you would do is to add more water in the boat, right? Well, that’s what you are doing when you are using your card when you are trying to pay it off. When paying off a card, focus on paying it off. Retire the card and hide it somewhere. Keep it hidden until you’ve paid off the card.