03 Feb Simple Ways to Stay out of Debt in 2020
Getting into debt is easy; it’s getting out of debt that proves to be the hard part. In a world where plastic is rapidly overtaking paper money, keeping track of transactions and expenses can be nearly impossible. You may find yourself suddenly in thousands of dollars of debt, unsure of exactly how you got there; instead of panicking, follow these simple steps in order to start working toward living debt-free.
Determine the Total Amount of Debt
The first step is likely going to be the most difficult and uncomfortable but is also the most important. List all your debts, expenses, income, interest rates, and minimum payments on a spreadsheet. Knowing the total amount of debt you have to pay off will help you determine how long the process will last and will help you plan the payoff accurately. While it may be a daunting task and a scary number, remind yourself that the next time you look at this spreadsheet, your debt will be smaller.
Once you know exactly what you need to repay, make a plan on how to go about repaying it. First, set a realistic budget that includes all your expenses, and from there, make a repayment plan. It may seem tempting to want to throw all of your cash at the biggest debt and then go about tackling the smaller ones, but experts suggest doing the opposite. Start with the smallest number, while making minimum repayments on all of the larger debts. Once the smallest is paid off, move up the chain, gaining “momentum” as you are able to pay off larger and larger debts. This “snowball effect” helps make debt more manageable, and will help you stick to your plan better, as you will be able to pay off debts completely and see rewards sooner.
We’ve all seen some movie or television sequence where a debt-ridden main character snips their credit cards in half or freezes it in a block of ice to help them gain some control over their debt. While we don’t necessarily recommend that you take it to such extremes, it is probably a good idea to stop using cards and start using cash, at least while you are still carrying debt. Studies have shown that people using cards are more likely to spend more than people using cash, which can inhibit even the best-laid debt repayment plans. Withdraw your budgeted amounts in cash, and when the cash is gone, it’s gone. Using cash will help prevent overspending and can also help you see where exactly your cash is going.
The most important part of getting out of debt successfully is sticking to your plan and refusing to give up trying. It may seem impossible at times, and some months may be more difficult than others, but stopping altogether will only make it worse in the long run. Remember that there are professionals here to help you, and if you can’t seem to find your way out of this cycle of debt, always seek advice from a financial planner.
Bank of the Lowcountry understands the struggle that comes with financial planning. If you have any questions or need some advice, please contact us at (843) 549-2265.