5 Ways to reduce your debt
If one of your financial goals is to be debt free, here are a few practical tips to help you get there.
1. Know how much you owe
If you’ve taken out one or more personal loans, have a home loan, owe money on various store cards or have maxed out your credit card, your first step is to know exactly how much you owe. Make a list of all your financial obligations, so you have a starting point for your get-out-of-debt plan.
2. Set up a budget
The next step is setting up a budget and sticking to it. Not quite sure where to begin? A simple way to get started is to list your monthly income and all your expenses. Then work out exactly how much you can afford to spend each month, and don’t be tempted to go over your limit. Also look for areas where you can cut down on your spending – the more you can save in your budget, the more money you can put towards paying off your debts. Speaking of which…
3. Prioritise your debt
Take your list of debt and order it according to the interest rate you’re having to pay on it – from highest to lowest. While you still have to meet your monthly payment obligations on all your debt, this can help you to decide where to channel any extra money you save through your budget. So, try to pay more than the minimum payment amount on your debt with the highest interest rate. Once you’ve managed to pay that off, take the extra money you now have and pump it into the next debt item on your list, and so on.
4. Be creative about saving
Although you may find areas where you can cut back in your budget, try to find creative ways to save on a day-to-day basis. Have a coffee at home in the morning rather than grabbing one on the way to work, take out books from the library instead of buying the latest bestseller, eat in rather than dining out – you get the picture. You can also look at doing a spring clean of your house and selling items that you no longer need or use. Any extra money that you’re able to save can go towards repaying your debts.
5. Stay on track
Reducing your debt (or even becoming debt free) takes time, planning and effort, but it will be worth it in the end. So don’t get discouraged – persevere, stay on track, and keep moving towards your financial goals.
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