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Published on August 3rd, 2018 | by Jones

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Drowning in debt? Here’s how to successfully settle and be debt-free

Student loans, car loans, credit cards, personal loans and mortgages are a handful of debt-racking financial loans that many people are faced with. Unfortunately, it’s a hundred times easier to accumulate debt than pay it off. But, it’s not impossible and there are many people who successfully settle all their debt in a matter of years.

It all starts by knowing your loans and setting a budget plan to pay it off – easier said than done. You need to know who your lending institution is, how much money you owe, the interest rate at which the loan is set, how long you have to pay off the loan and what your current monthly payment is towards that loan.

When you have the specifics, along with your budget, you can start taking the necessary steps (a few of which we will be discussing) to get rid of your debt once and (hopefully) for all.

 

Consolidated loan

 

Something that many people do to start handling their various sources of debt is combining them all into what’s called a consolidated loan. Wait, another loan? Surely that can’t be right?

The purpose of debt consolidation is that you’ll have a chance to pay off all of your debts at a lower interest rate. If you use your instalment calculator, you’ll realise that this means the overall cost of your loans will be less than if you chose to pay them off on their own at their respective interest rates.

You can apply and receive an online loan approval within a few days. And, depending on what your debt total is, you might not be able to consolidate all your debt into one personal loan, but that’s where the rest of our get-debt-free tips will help. It will still make a positive difference and help you in the long run.

 

Make more money

 

Obviously, this is something everyone wishes were easily attainable, not just those drowning in debt. But when you are stuck in debt, you have a bit more motivation to get your butt in gear and start doing something substantial about it.

Your options regarding your current job include asking for a raise, earning a promotion or finding a new job that pays better altogether. But there are other things you can do to earn a bit more money every month. And, considering that you’re surviving on your current income, that money can all go towards paying off your debt.  

Remember, every little bit of extra cash helps so if you start working weekends, blogging, selling beauty products or even just completing surveys, you can use the extra financial help. And it’s not a permanent new job or side hustle, it’s purely for the loan period until all of your debts are paid. Unless, of course, you end up enjoying it.  

 

Set monthly restrictions

 

Paying off debts is easier when you have more money. So, if you really don’t have the time to work an extra job and make more money that way, the next best thing (which you should do anyway) is to save money.

This is one of the more difficult money practices to enforce, but many of us do have terrible splurging habits that are no help when it comes to managing debt. If there were such a thing as an easy way to better your spending habits and save money every month, it would probably be through setting monthly restrictions.

For example, this month you could decide to stop buying takeaway coffees. Even if you only drink one takeaway coffee a week, that’s about R140 in a month. And if you’re being honest with yourself, you don’t only buy one take away coffee a week. Then in the next month, you might choose not to eat out on weekends. And the following month, no online shopping. And so you go on, cutting out a “splurge” expense every month and taking all the money you’re saving from that to pay off your debts.  

 

Use the snowball method

 

Now, it’s all good and well to know what you’re supposed to be doing and implementing it the best way you can. But what is the best way to physically pay off debt? There are two main ways of going about it according to Dave Ramsey, the snowball method and the avalanche method.

The avalanche method seems to make the most financial sense, as the strategy involves paying off the debts with the highest interest rates first. And it does work. However, the snowball method has proven to be more successful for most people.

With the snowball method, you pay off your debts from the smallest to the biggest, irrespective of the interest rates. And it works because once the debt is paid, the money you were putting towards that debt, rolls over to pay off the next debt sum. This way you slowly build a momentum of paying off your debts and, psychologically, it helps.

Living a debt-free life is possible and it’s something everyone should strive for. And once all your debts have been paid, you’ll never allow yourself to drown in debt again.

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