Debt is often the unwanted guest at your party. You only invited them out of necessity because you thought you had to, and when they got there you wondered what you were thinking. If you feel like excessive debt and high-interest rates are raining on your parade, it is time that you do something about it. You can’t simply hope something is going to happen and your change can’t be a one-time thing. You have to develop habits that help you toward a debt-free life. In this article, we are going to talk about five habits that will help you get out of debt.
1. Pay Bills on Time
This is one of the basics that is going to help you go a long way with your debt reduction plan. If you are late on your bills, you incur late fees and sometimes your interest rates can jump up to higher rates because of being late on your bills. Being behind on your bills also has a negative impact on your credit score which means if you try to go to get a loan, you are going to be subject to a higher interest rate. Paying bills on time is a habit you should create, but an even better habit of creating is paying bills early. If you plan to pay bills early and forget or have something that comes up, you have more time to get the bill paid on time.
2. Save Money in an Emergency Fund
Life happens, and when it does, we often get into debt because of these challenges. The best thing we can do to keep from getting into debt from unexpected challenges is to expect the unexpected. Save money in an emergency fund so when something out of the normal does happen, you can draw from that fund and then build it up again. This will keep you from getting into debt, paying additional interest and working against your goal of being debt free.
Depending on the normal size of your emergency, you might want to keep $300, $2,000 or more dollars in a savings account for something that might happen. You shouldn’t use this money for everyday things and to borrow from like a cookie jar fund. You want to keep it there for something out of the ordinary, so you don’t have a challenge arise and then have an empty fund.
3. Double Pay on Your Payments
Getting in the habit of paying double on your payments will allow you to decrease your principal balance much quicker. Even if you have a high interest rate, you are going to be much better off if you pay double payment. For those of you that don’t think you have the extra money to pay down those payments, think about getting a side job and putting all of the money you make from that side job toward your extra payment. Since you aren’t used to having this extra money, you won’t even feel it.
If you don’t want to get a side job, you could always capitalize on the gig economy. Everyone has some sort of skill that people are willing to pay for. Maybe you want to tutor college students for their exams, babysit or mow lawns. Whatever it is that you have the skill to do, you don’t necessarily have to like it. Your goal is to bring in additional money so you can make a double payment and get yourself out of the hole called debt.
4. Consolidate High-Interest Loans Into Lower Interest Loans
High-interest loans and credit card debt can eat up your money. A $2,000 balance could take as much or more than 370 months to pay off the balance if you only pay a minimum payment of $10. If you have the opportunity to consolidate your high-interest loans and credit cards into lower interest loans, you can save yourself hundreds and thousands of dollars. Make sure you don’t recharge those credit cards after making the payoff. If you are going to use them, you should always pay them off before interest accrues. Not only does this ensure that you aren’t going to get charged for using the money, but it also shows creditors that you are responsible, and they tend to give you better rates.
5. Never Go Into Default on Student Loans
When you default on a student loan, you could experience garnishment. There is no way to stop student loan garnishment from your paycheck and no way to stop tax refund offset if you truly owe the money. If you are the spouse of someone that is experiencing garnishment and are due part of the refund, you can file as an “injured spouse” so you can get your part of the refund. You have to prove that you are in no way responsible for the money owed.
Final Thoughts on Getting Out of Debt
The sooner you can get out of debt, the better it is for your bank account. Debt can leave you stranded with very little wiggle room, and if you move the wrong way, you are hanging off the edge of a financial cliff. Developing good financial habits will allow you to move forward the pinnacle of a successful financial plan. It usually isn’t the mistake that we make once that is the problem, it is the one we make over and over again that causes major challenges.
If you have any helpful tips and advice for getting out of debt, leave a comment with your thoughts in the section below.