23.6 C
New York
Wednesday, July 24, 2024

How to Get Out of Your Debt In 7 Actionable Steps

Debt ……….

[Tweet “”Debt is the certain outcome of an uncertain income “”]

Money itself and finance as a whole are two different things most people do not comprehend and this has led into heavy debts which results in emotional distress.

Truly, no one finds pleasure in being harassed by his creditor or the headaches attached, after all we all need some financing and little assistance here and there to set up an establishment with the hope to reap some continuous reward or benefits or to enjoy a good standard of living.

If you find yourself in one debt or the other because things did not go as planned, this article will help you to survive and get out of debts. But first you should understand that not all debts are bad.

Good debt and bad debts

Almost everyone believes debts are generally bad but there are good debts too. The difference between good debts and bad debts is that a good debt makes you rich and bad debts make you poor.

Good debt is one in which someone or something makes payment for your liabilities and bad debt is the debt you pay for. Good debts gets money into your pocket and bad debts gets money out your pocket.

Loans are liabilities but if you get a loan to buy a building with apartments to rent out and the money you collect from tenants is used to finance the loan, you have a good debt.

If you secure a loan to buy a car or even a building where you live, that’s a bad debt because this takes money from you i.e. you’re the debt payer not someone else.

You can get an expensive liability on debt like a car, house, shoes etc. but if you don’t have a solid plan to pay for it, you’ll find yourself in the oceans of debt and you’ll be helpless.

If you need something you don’t have money to buy, get it by making a deposit, arrange a financing with your creditor and most importantly, find an asset to pay for it.

Instead of paying an interest (additional expense) on your liability and getting poorer by doing so, you can get richer using the income from the assets you own to pay for your debts for as long as it takes and enjoying later on when the debt is paid off.

All I’m saying is, you should have a solid backup plan for assets that will pay your debt (you have simply made money work for you).

With an understanding of good and bad debts, here’s how to survive and get out of bad debts in 7 steps.

  1. Acknowledge

If you really want to get out of debt, you need to admit that you’re in debt. You need to respect the power of debt or you find yourself financially wounded. You have to pinpoint how much debt you really have.

Figuring it out is good for you but it’s not always pleasant. If you acknowledge that you’re in debt, you will give yourself a chance to know the price of getting out of such bad debt(s). So make a list of all the debt you owe i.e debts you’ll pay for.

  1. Be ready to take responsibility

One funny thing about some debts is that they keep growing. I’ve met with some people who enrolled in one of the common empowerment schemes, where they secure certain loan amount to finance their small businesses and are asked to pay certain interest on a weekly basis.

This kind of loan when the business can’t pay back lands the owners in a debt trauma. Interest on the loan then starts to pile up.

You must be ready to take responsibility for your debts. Some people have worked other jobs to get things back in shape.

Paying the money back will be a wise decision as you will learn to be smarter with your money and be richer in experiences you’ll gain along the process.

Also Read: Top 16 Insurance companies in Nigeria

  1. Take control of your cash flow

If you want to get out of debt, you need to take control of your cash flow using a financial statement.

A financial statement shows your financial position. It gives you a clear figure and a sense of direction. It states your income, expenses, savings, assets and liabilities.

You’re not a book keeper you may say, but you need to keep records of your financial activities to help you see clearly the figures and will help you plan your way out of your debts.

  1. You need personal money discipline

[Tweet “”Regular borrowing begets regular sorrowing””]

Break your bad money habits. For most people, bad money habit was the major cause for being in debt. You need to get your personal finances in order.

Pay your bills as early as possible, buy only what you need, don’t spend more than you earn, don’t gamble and make sure you put off some savings for the rainy day. If you haven’t been doing any of the suggestion made then you have a bad money habit.

Related: 7 easy ways to save money

A part of what you earn is yours to keep

Whenever you make an income, or get paid for your job pay yourself first and not a fraction of any debt you owe. Pay yourself a reasonable amount from the income you make and keep it until you’re ready to invest in some other way.

Buy what you need

You need to cut unnecessary cost to free up debts. Identify the part of your finances that go you into debts and attack them head on.

There’s no crime in it if you want something so dearly, but it is not advisable to buy those extra things of life impulsively when you’re in debt. After all, those are one of the reasons you’re in debt.

If you find yourself in a hole, you need to stop digging. You need to change your spending habit and take the pain till you get out of your debts.

Also Read: 20 best Lagos law firms for legal services

  1. Talk to your creditors

Now you have your debts listed. You may need to take the pain to sit with your creditors and give them honest reasons why you can’t pay the amount required of you and what your plans are to get the debts cleared.

Here, you need to propose a feasible and reasonable plan based on the amount you intend to pay every month to make sure you pay your debts.

Let each of your creditors know and make sure you do everything possible to make each of them come into terms with you.

Getting back their money is the most important thing to them, so go with a repayment plan and show them exactly how you intend to pay back and make sure you fulfill the other end of the deal.

Note: this tip is not for you if do not have any certain monthly income.

Now, you have a monthly requirement that you’ve set. Not all your creditors will want to take it easy with you. You need something, which is..

  1. You need an extra source of income

Finding another source of income can make the difference between merely keeping creditors at bay and actively chipping away at debt.

Some people have worked another job to make sure they get their freedom back. If you’re a government worker, tapping into your retirement funds if you have access to it is not the way.

You just need to find some extra source income. Don’t forget, from every of your income, you should pay yourself first, using those can help set up something. You may not need money to set up, you can turn your skills into money. You can teach or do some other stuffs on a part time basis, it is worth it.

  1. Prioritize debt payment

Tackle debts with the highest interest rate first. This will mean concentrating a larger percentage of your income into getting out of it.

If a creditor can come after your personal assets if you default, make sure paying off those debts become high priority.

No one said it’s going to be easy. You just have to face it. You may have to leave below your means for a long time to get your debt settled (for some people, it took years), then you can get back to what you were before getting into debt.

Paying your debts off will be a wise decision as you will learn to be smarter with your money and be richer in experiences, gaining wisdom along the process.

Find this article helpful? Share With Your Friends too!

Steve Oke
I am a music, nature, business and books lover whose path is not yet perfectly defined. Combining my empathic nature with the enthusiasm for knowledge, I’m trying to put my skills to good use by helping others while discovering myself.

Related Articles

Latest Articles