Having debt is the last thing that you should have, especially in your younger years.
Buying things using borrowed money is good at first because you will be able to buy the things you want. But it is a bad habit because when unexpected things happen.
Being unable to pay your debts on time will result in consequences, like imprisonment.
In life, it is normal to have debts. All people from all social classes have debts and have had debts before. But what is important is that you should be able to pay for all of them.
In this article, we are going to tackle how to get out of debt on your own.
🤔 What is debt?
Debt is something, usually money, that you borrowed from someone. Debt has due dates telling when you should pay it. It is very unprofessional if you do not pay your debt on time and you might face consequences. There are twelve (12) types of debt. Some of which are protected debt, unsecured debt, fixed interest rate debt, variable interest rate debt, and fixed payment term.
Most common types of debt that people have:
House or car loans
Aside from money, people can loan things like houses or cars. In this kind of debt, there are papers between the person and the company.
People may now use the item if they’ve already settled the papers including the down payment.
The rest of the amount is payable monthly or quarterly, depending on the amount and the terms agreed upon by both parties.
If the person does not settle the payment, for at least 3 months, the company may get the items back without any refunds.
As of now, you can also borrow other things like appliances such as refrigerators, air conditioner units, televisions, gadgets like cell phones, computers, laptops, cameras, etc. Most of these loans have 1% to 2% interest.
However, if you pay in cash, you may get a discount too.
Debt from another person
This is the most common kind of debt that people have.
This is the money that we borrow from another person. May it be a family member, a friend or even a coworker. Here, it doesn’t usually have an interest as long as you pay it on the due date because you might risk your connection or friendship with that person and you might break their trust.
Someday if you will be needing money again, they might not let you borrow something again.
In this kind of debt, the amount should not be very high because that person will only let you borrow some of their spare bucks.
I’ll give a scenario. For example, you and your friend went to the beach then you left your wallet in your hotel room, but you already ate. To pay for your food, you will borrow a small amount of money from your friend then promise you’ll pay it back when you get back to the room later.
Another scenario is, let’s say, you need to give your parents money for their medicines and groceries but your salary will be given to you on the 30th, but your parents need it by today. It is still the 12th, so you will borrow money from your friend and then promise to give it back by the 30th.
Credit cards are like debit cards that you may use to pay for your food, transportation, clothes, and other things you may buy from stores that accept credit cards.
These credit cards are linked to your debit card or your account where your salary is, in which case you may pay it from there.
Credit cards have these credit points that if you are a holder that pays very well and on time, your credit limit will also increase, thus you can earn points that you may use.
However, being a credit card holder is a responsibility because you must not use it for unnecessary things or for the items that you cannot pay for because these credit cards also have interests.
You can borrow money from loan companies but with high interest.
It also has papers that both parties have to sign so that both of them have something to hold onto.
There are a lot of loan companies out there, some are partnered or owned by banks.
⛓️ Why do you need to get out of debt?
If you do have a lot of debts, here are the reasons why you need to get out of it as soon as possible.
- You might lose trust from the person or company.
- Some debts have high interest so if you fail to pay them on time, higher interests will be added.
- If you do not pay the debt and try to hide it, the person or the company may sue you.
- If you do not have debt, you will be able to help out others when they need it.
- Having no debts and earning a lot of money at the same time will give you the benefit of early retirement
- Also, you need to take care of your debts so that money won’t stress you out. Worrying about money at night will make you a lot less productive on the job the next day.
🧰 Tools to help you get out of debt
Wondering if there are any tools that can help you get out of debt? Well, good news! There are tools that can help you and we will tackle them one by one.
- Bank Transfers
Some credit card companies offer balance transfers. It is like transferring a balance from one credit card to another.
For example, if you have a $2000 balance with 15% APR but you want to transfer it to another card that has 0% APR for 12 months, you are going to save up to $300 in interest.
However, there are downsides to this. First, transferring your balance is not free. Second, it does not solve your debt problems unless you’ll be able to make a big enough payment. Third, more credit will lead to more temptations for you to spend more impulsively.
It is a marketplace that helps people find the right loan for them by analyzing their credit score and budget. They are in partnership with 30 lenders so that people will have a variety of options.
- Planning your finances
A lot of people who have debts don’t know how to avoid making mistakes. Managing and planning your savings will help you avoid debts.
This is a simple formula, 50% for your personal and essential expenses like rent, electricity, water, and food; 30% for your wants or investments; the last 20% of your income, you need to allow that for your savings to avoid debt in the future.
- Start side-business or side-hustles
Having side-hustles or side-businesses will help you earn more bucks that you can add up to your savings.
Earning more than usual is very important because it will help you avoid having debts in times of extreme need.
Wondering what kind of side-hustle or side-business is right for you? Check out our blog article for that!
🚀 Now, Take Action!
With all the tools that we’ve presented to you, it is now in your hands how you will help yourself get out of your debts.
We are only here to guide you but it will be you who will do everything to pay your debts and to avoid having needless debts in the future.
Again, it is normal to have debts, but do not put too much on your plate.
❓ You Might Ask
- How do I get out of debt with no money?
Planning your expenses will really help you avoid having debts.
Providing at least 20% of your income for savings will not harm your wallet at all. Instead, it will help you in the future.
In addition, if you have current debts, you should pay on time so that there will be no interest and penalties.
For example, you loan a motorcycle, then your due date is every 13th of the month but you paid on the 15th, the company will charge you $5 dollars for the penalty.
- How do I get myself out of debt?
There is no other way to get yourself out of debt other than paying it and learning from it.
You should utilize your profit and save some for emergencies so that you will avoid ending up having a lot of debts.
You should also evaluate everything before you buy something because maybe it is not essential, right? If so, you can remove it from your list.
Also, it will be better if you will pay your debts with the highest interest first because the more that you pay it last, the more the interests will pile up.
- How can I pay off debt fast with low income?
By having a second job or doing side-hustles like gigs. You can start a small business in your house or online.
You may also consider offering services online like freelancing in Upwork, Transcribeme, or Fiverr. With that, you will be able to earn a few bucks that you can use to pay some of your debts.
- What is the first step to get out of debt?
The first step to get out of debt is to cut your credit cards out.
Credit cards are the easiest and fastest way to have a lot of debt because you can use them anywhere and anytime you like. That is why cutting it will hinder you from spending a lot, as It is like if you cut your credit line, you are also cutting yourself off from getting debts.
- What to do if you are drowning in debt?
If you are already drowning in debt, you should now stop all the monthly subscriptions that you can live without.
For example, cutting off your subscription to Netflix or Spotify. After that, consider saving some of your profits and put it in your emergency funds.