There are 3 steps to eliminate debt:
1. Don’t run into new debt
The reason people can’t get out of debt because they are getting more and more debt. Immediately stop using credit to fund something, especially with a credit card to buy things you can hardly afford. Never buy anything without excess money in your bank account to pay. Credit cards are the worst line of credit available. Credit cards charge 14% to 24% of annual interest, so it’s not hard to see why people who have accumulated a lot of debt with credit cards seem to have a hard time paying off their outstanding balance. If you cannot control the use of your credit card, do not take your credit card with you when you go out. Savvy credit card users can bring their cards without carrying too much cash. However, they avoid excessive interest by paying the balance due in full each month.
2. Establish an emergency fund
Someone may ask, “Why to save money before paying off my debt?” The reasonable answer is that if you don’t save money for an emergency, you won’t be able to deal with contingencies that could harm someone. For the reasons I explained earlier, you should not use your credit card as an emergency option. In an emergency, it is best to save money. Open a savings account specifically for your emergency funds. Maintain the funds’ liquidity, but do not link your emergency funds account to a debit card. Ensure that the account is not easily accessible because as the savings grow, people use the money easily. Don’t undermine your savings efforts by spending money in your emergency financing account on non-essential items (like wine, restaurants, LV handbags, or the latest iPad). Preferably, you can ask your bank to automatically transfer a substantial amount of your income to your emergency deposit every month.
I know this sounds like an impossible task, especially if you are currently in debt. But trust me, you can! I suggest establishing 6 to 8 months of living expenses as your emergency fund. Once this amount is reached, move on to the next step to pay off your outstanding debt.
3. Implement debt snowball
Depending on how big your debt is, the final step can take months or even years. Most financial advisers recommend paying off debt from the highest interest to the lowest interest. While this makes mathematical sense, it makes more psychological sense to snowball debt to get rid of debt. Your morale will be higher when you see your debts cleared one by one in the process.
A snow balance debt includes the following steps:
1) List your debts from lowest balance to highest balance.
2) Allocate a minimum payment for all debts except the lowest balance.
3) Payback all debt with the lowest debt balance.
4) When the debt with the lowest balance disappears, the same amount is used to pay off the debt with the next lowest balance.
5) Repeat step 4 until all debts have been settled.
Other measures can be taken to improve the financial situation. Pay attention to the basic wealth accumulation formula, which requires you to spend less than the income. Find out what you can do to increase your income and reduce unnecessary expenses. Distinguish between “demand” and “demand” and then proceed to reduce the costs attributed to “demand.”
Getting rid of debt is a gradual process. Practice discipline, take only one step at a time (no matter how small the stride at the beginning), and you will eventually get there. Most importantly, don’t wait any longer and start getting rid of debt immediately!