Accessing finance is easier than ever, but over time, your debt can build up and you can struggle to get out of it. In emergency situations, you might have taken out a payday loan, but ideally, you want to be able to get to a stable place where you don’t need to outsource extra finances. If you want to end your cycle of debt, keep reading and discover 7 steps you can take to become debt free in 2022.
Figure Out What You Owe
The first step to clearing yourself of debt is to figure out how much exactly you owe. Spend an evening going through all of your borrowed finance and adding up all your payments to give you a total repayable figure. Make sure you take any interest that will be added into account as well. If you’re thinking about clearing a personal loan, double-check your term agreements, as some may charge you for ending your contract early. Once you know exactly how much money you owe, it’ll be easier to create a sensible repayment plan that you can actually stick to. It will also help stop the temptation of using more of your borrowed finance, as you’ll have a clear plan of action to follow.
Create A Budget
When you have the total figure that shows you your debt, it’s time to create a budget. Start by figuring out your income and your outgoings. This will allow you to see exactly how much money you have left after making all your payments that month. Try cutting down on some of your regular expenses too, as this will give you more money to save or put towards your debt repayments. You may have to make some sacrifices for a little while, but it will be beneficial in the end. Ensure that your budget, though tight, is realistic. Otherwise, you may end up splurging and ruining all your hard work.
Increase Your Payments
With a budget in place, you’ll know exactly how much money you have left over at the end of each month. Using your budget as a guide, see if you can increase any of your monthly debt repayments. Potentially, you could also pay them off sooner if the amount isn’t too large and your budget allows. Increasing your payments allows you to pay off your debt quicker and stops you from incurring as much interest. If you had a credit card that had a 0% interest rate for the first 12 months, you could focus on paying this one off first to stop you from being charged interest when the agreed term ends. Similarly, if you have a personal loan with a high interest rate, increasing your payments on this can be beneficial as you’re cutting down the amount of interest that will accrue on your account. Make sure that you’re sensible and don’t increase your payments by too much if it will leave you with barely any money left to live on.
Don’t Miss Payments
A top tip when clearing debt is to ensure that you don’t forget or miss any repayments. Most lenders will charge you for missing payments, and it could increase each day that it’s late. This is why it’s crucial that you pay your debt repayments on time, otherwise, you’ll end up increasing your debt instead of reducing it. If you struggle to remember the dates you need to pay on, try setting them up automatically or adding reminders to your calendar or phone.
Don’t Apply For New Finance
It may seem obvious, but do not apply for any further finance. If you want to become debt free by the end of the year, the last thing you want is to add to it. This will only make it harder for you to pay it all off and you may end up even more worse off than you were before. If you manage to clear your personal loan, don’t apply for another one. Instead, start working to save your own money as that won’t cost you a thing.
Stop Using Credit Cards
Credit cards are so easy to use and spend on, which is what makes them deadly when trying to rid yourself of debt. You might think that it’s just a small spend here and there, but they soon add up and before you know it, you’ll have racked your debt right back up. Once you’ve paid off your credit card, cancel it and get rid of it safely. Having it around can sometimes be too much temptation and you might find it hard to resist. This is why getting rid of them once their paid off can be the best solution. You’re more likely to use the one you’ve got in your wallet than go through the whole application process again. So if you pay them off, don’t keep them around.
Saving money is essential if you want to help keep yourself debt free. Having your own funds to back you up in a financial emergency is the best way to avoid borrowing from lenders as you will no longer need them. When you’ve got a budget in place, it’s easier to save money as well. You’ll know exactly how much you have to live off and what your repayments are, so any spare money could go right into a savings account. You don’t have to be saving large amounts either. Saving small and often has been proven to help people save more in the long run, so try popping a little bit in when you can.
Becoming debt free isn’t easy, and if you’re really struggling, make sure you speak to the professionals who will be able to give you expert advice. These 7 steps may seem small, but they can really make a huge difference to your finances. Not only will you be working to pay them off, but you’ll also be able to keep your debt gone for good.