We are also going to address a series of tips that will prevent you from acquiring debt in the first place.
These range from credit cards, personal loans that you do not need, bank loans at high rates, or, in the latter cases, financing from family and friends.
Before leaving your debts, keep in mind the following information:
Starting to save your money later.
In 2009, only 20% of people between the ages of 18 and 24 were unemployed or underemployed. However, over the years, this figure has been increasing to reach 50% today.
Add about 5 years to get a college degree, plus the thousands of dollars in loans you need to pay for college, for sure, and you’ll have a problem.
This reality has put the maturity of young adults at an all-time low and their debt at an all-time high.
Based on this new scenario, it is not only essential that you learn how to get out of debt, but that you decide to lead a debt-free life in the first place.
And although it is a decision that implies assuming great sacrifices, it will be worth it in the future, when you can enjoy your financial freedom, regardless of the money you are billing.
How to get out of debt quickly without affecting your lifestyle:
If you find yourself in debt, the first thing you should do is get out of the financial hole in which you find yourself before thinking about expenses that do not generate income or trying to appear that you lead an enviable lifestyle.
Here are 10 steps to learn how to get out of debt easily.
1. Allocate 30% of your income to cover your debts:
Although you can allocate a higher percentage, it does not make sense for you to stop living while you pay your debts.
It can indeed take a little longer when you only allocate 30%, but remember that you have other maintenance expenses such as housing, food, and family, among others.
You must learn how to manage your money if you want to get out of debt.
If you learn to live with this remaining amount, your debts will become your priority and you will quickly begin to feel the effects of paying less interest.
2. Organize your debts in order of interest rates:
If you want to learn how to get out of debt quickly, pay those commitments that imply a higher cost.
In that way? Pay the debts that have a higher interest first, in this way you will avoid the interests continuing to accumulate, and your debt seems that it will never end.
What you should do is classify your debts on an excel sheet, or blank paper, and according to the annual or monthly interest rate, you are going to classify your debts from highest to lowest.
The one with the highest interest rate will go first and this will become your number one priority. Once you finish paying, continue with the next one, and so on.
3. Don’t just pay interest, make capital payments:
Interests are the manifestation, but they are not the root of your financial problems. The problem is that you are not reducing the base on which you are charged interest.
That is if you owe 100 dollars and they charge you 5 dollars interest per month, and all you do, month after month, is take the 5 dollars out of your wallet, you will never pay your debt.
Payments to the capital is that extra money that you give so that the base, or the capital, that is to say, the 100 dollars of the example, is reduced and therefore, the interests as well.
If you decide to make a capital contribution to your debt with the bank, you have two options:
The first is that the amount of the fee is reduced, that is, you pay less; or reduce the time of the loan, which implies that you continue paying the same but for less time.
4. Return your credit cards:
These plastics is an incredible financing tool, as long as you learn how to use credit cards.
If you use your credit card to support your lifestyle, rest assured that you will never learn how to get out of debt. Why? Credit cards have one of the most expensive interest rates in the market.
Depending on the country in which you are located, this rate may vary. According to the newspaper El Financiero, the rates in Latin America are between 25% and 40%, except for Brazil, whose rate has reached up to 400% effective annually.
How to get out of debt if you have credit cards:
If you have several credit cards, the first thing you should do is return those with the most expensive interest rates; It makes no sense to be paying high interest when you can get the same money for a much lower “price”.
If you do not want to lose the “available money” that you had on that credit card, and they are from the same bank, you can request that they transfer the quota to another.
However, remember that this quota of your card affects your debt quota in general.
What this means is that if you later want to obtain a home loan, and you have several cards with significant quotas, it is possible that you will be rejected; since the bank interprets that your ability to pay is already being affected by those credit cards.
If your goal is to learn how to be a millionaire, you should give yourself the task of having a maximum of one or two credit cards.
Silent Expenses: The handling fees
Handling fees are what the bank charges you for giving you a credit card. This value will depend on your negotiation capacity as a client and the benefits that your card has.
If you have five credit cards, you will be paying five handling fees. Honestly, this money could be a much better investment if you use it to pay off some debt.
So when choosing which credit card to return, consider the handling fee. Believe it or not, this is how you learn how to get out of debt the easy way.
How to use a credit card wisely:
As we said at the beginning, credit cards are an incredible financing tool if we know how to use them.
So once you have returned the unnecessary cards that you have in excess, it is time to put the ones you have to intelligent use. Here are some practical tips:
1. Make all your purchases in a single installment, or failing that, pay your purchases within the first month. What this does is that you do not pay interest, since these begin to run from the second it is.
In simple words, when you buy a single installment you are getting borrowed money for free.
2. Credit card quotas are not “extra money” that you have once your income runs out. So do not buy things that you do not have to pay for during the next month.
If you do, it means that you haven’t learned how to get out of debt and want to continue to maintain an expensive style with expensive plastic money.
3. As much as possible, use your credit card to make expensive purchases. When you get used to paying everything with your card and continue with the cash in your wallet, it gives you the impression that you have not spent almost so you feel that you can relax.
The problem comes when the collection account arrives at the end of the month and you have nothing to pay with.
4. If you are using credit cards and you are not taking advantage of the benefits they offer, you are giving away your money in each handling fee.
From the points or miles that they offer and that you can redeem for trips, products, or experiences; to medical insurance, vehicle insurance, purchases, locksmiths, and protection for your purchases, among many other benefits, your cards are more than just plastic.
5. Last but not least, know two important dates: The payment date and the court date.
The first is the date when you have the deadline to pay what you owe on your card. The cut-off date is until the day of the month that your credit card will be charged.
In that way? If your cut-off date is the 15th of each month, the purchases you make after this day will not arrive on the next bill, but on the next one that follows.
For example: If your cut-off date is October 15, and you decide to buy a television on October 14, you must pay for it in November.
Now, if you decide to buy it after your cut-off date, that is, from the 16th onwards, the payment will not be made in November, but in December.
5. Avoid delinquent interest by paying on time:
You are already paying considerable interest on your debts, did you know that if you fall behind on the payment dates of your debts, the interest is much more expensive?
This is known as the default interest rate, and it consists of a penalty for delaying paying your debts; regardless of whether they are credit card debts, mortgage debts, or free investment loans.
How is it possible to learn how to get out of debt if you are not paying it on time?
You can put a reminder on your cell phone or calendar, or apply point number 6 on this list to learn how to get out of debt.
If you think that this type of thing does not help you get out of debt quickly, just think that if you forget to pay on time several times in the same year, what you will pay extra is equivalent to two or three more installations.
6. Check portfolio purchases:
Portfolio purchases are a very interesting alternative when it comes to learning how to get out of debt quickly.
Why? You may have several debts with different entities, banks, or intermediaries.
So this consists of going to a bank, or financial institution, and asking if they are interested in grouping all your debt and having them buy your portfolio.
That is, they pay all your debts and you agree to pay them for a certain interest rate.
This makes your life easier because you will not only be paying a single installment for all your debts but also because you can negotiate the interest rate that they are offering you and pay less than what you are currently doing.
The worst errand is the one you don’t do. The first thing you should do before seeking the purchase of your portfolio is to go to the bank and renegotiate your debt, if they say no, you can proceed to other entities.
7. Automate the payment of your debts:
Many times we do not pay on time, we incur interest in arrears, or we are even reported in risk centers not because we do not have the money to pay, but because we forget to do so.
What better way to get out of debt quickly and easily than by automating debt payments?
The monthly payment of your credit card can be automated, and the payment of the apartment and the car can be programmed in such a way that you receive a monthly notification every time the money is debited from your account.
However, you must constantly review your payments, the current balance of your debt, and the amount of money that you are allocating monthly to your debt.
Normally, the payment schedule has an end date, so you must check constantly so that you are not going to fail to meet your commitments.
8. Stop being the guarantor of the debts of your friends:
Do you know what happens when someone fails to pay their debt? The bank goes to its guarantors to make them responsible for the payment.
No one is questioning that you are a good friend and that you are the kind of friends one should surround oneself with, but please find another way to prove your friendship other than co-signing someone else’s debts.
There have been many cases in which you call friends to stop paying their debts and don’t care about the fact that you are the one who has to go out and pay for something you have never used or enjoyed.
9. There are also good debts:
You mustn’t forget that there are good debts, those that we mentioned at the beginning of this article and that can help you generate income.
What is the difference between good debt and bad debt? That the first generates enough income to cover its cost, that is, the interest rate, and leaves you with a surplus.
While the second is used to buy objects that do not generate extra income, and that even represent a new expense since you must maintain them.
This is why if you have a business idea, investment plan, a venture that you want to develop and you don’t have the capital; You should consider some financing alternative.
You cannot limit your ability to generate income and earning mentality to the current situation of your pocket, especially when there are so many alternatives to obtain credit online, business loans, among others.
10. Stop taking on more debt:
How do get out of debt fast? Stop continuing to acquire debts that open new holes in your pocket.
Like anything in life, the power of habits plays a fundamental role in achieving your goals. Do you want to stop spending so much, get uselessly into debt, and prosper financially?
Do not leave all this responsibility to your willpower, rather create habits that help you achieve it.
For example, on your next trip to a shopping center, leave your credit cards at home. If you are going to buy something that exceeds a certain economic amount, set a rule that makes you think about it 12 hours before making the decision.
These types of actions, or small habits, will undoubtedly help you in your question of how to get out of debt quickly.
Here are some ideas to stop spending more money than you earn, and avoid debt:
Stop buying things you won’t remember in a week:
If you’re going to buy something that you won’t remember within 8 days, you shouldn’t spend your money on it. If you do and completely forget about it, you’ll be throwing your money into oblivion.
The only things that will be completely forgotten, and that you should spend your money on, are your necessities–food, clothing, and a roof over your head.
– Check your credit card statements
The solution to avoid these expenses is to review the movements in your bank statements regularly and keep a record of this type of purchase.
What purchases did you make that you can barely remember, or completely forgot about?
Recognize which places you made those purchases, and identify them as places where you forget your money forever. There’s no point in going back to where you’re throwing it away.
Avoid recurring outings to eat:
There’s nothing wrong with going to a restaurant as long as it’s a memorable meal. If you’re going out to eat with some friends you haven’t seen in a while or a celebration with someone special, it’s fine to go.
The problem occurs when you go to restaurants every weekend, and on days you don’t even remember where or what you ate. Fast food, Chinese food, and hamburgers often fall into this category.
You will forget these examples, they are relatively expensive, bad habits for your health, and do not help you “save a lot of time”.
Lease, and don’t buy, your place of residence:
The dream of many people includes buying their own house or apartment. The problem is that they have to mortgage their lives to live their dream.
These people decide to go into debt with installments that limit their lifestyles, limit their room for maneuver, and the range of decisions they can make.
Additionally, these fees are accompanied by the payment of taxes, insurance, administration expenses, and others.
The result is that many homeowners end up in a corner; having a home they love and very little money to live on or to save for the future.
In short, it is a complicated alternative: people are forced to lead a tight life, where they must keep their jobs, or everything else in their lives falls apart.
A much more attractive and lighter alternative is to lease instead of buying and renting cheaply.
– Focus on the location:
The recommendation is to find a place where you are close to your work and where it is easy for you to carry your social life and friends, as well as being a place close to public transport.
What you should look for with this is that most of the things you have to do at home, you can do on the street, and in this way, reduce “home” expenses.
Choose a lifestyle that maximizes your freedom, not the things you have. Choose to live memorable moments, not experiences that you will not remember and they will take your money with them.
You can achieve all of this when you learn how to get out of debt since you not only can continue growing, but you are no longer limited to meeting payments and commitments.