Handling personal finances is not something that’s taught in the high school curriculum. So many people go about their lives not knowing how they should spend their money or build their credit and quickly bury themselves in insurmountable debt that they can’t get themselves out of.
When this happens, most people would just be forced to live with their debt because they don’t think clearing it is worth the effort, but it is. By freeing yourself from the debt that’s been hindering you from spreading your wings, you’lgl be able to plan for your future and control your finances instead of letting it control you.
However, this path is long and winding, so it’s important to know what you’re getting yourself into before tackling your debt. That said, here are three of the best ways to dig yourself out of debt without compromising your sanity, especially because debt can be overwhelming to deal with on your own:
Avalanche or Snowball Method
You can use either of these two approaches when you start tackling your debt: the “avalanche” method or the “snowball” method. Basically, the avalanche method refers to paying off all your high-interest debts first. Through this approach, you can pay off the high-interest debts as much as you can while only paying the minimum on the others.
On the other hand, the snowball method refers to paying off the smallest debt firsts before tackling the high-interest ones. This way, you can eliminate your debts one by one, so you’ll be more equipped to deal with loans that have larger sums. Once you settle the debt, you can then move on to the next.
Using the avalanche or snowball method to dig yourself out of debt may take longer, but it can also be a wise move that will allow you to get a firm grasp on your finances. This is because you’ll only be focusing on one debt at a time instead of trying to tackle multiple debts simultaneously, as this won’t overwhelm you.
If you’re having trouble keeping up with all your debts and making the payments in different financial institutions, your best bet may be to consolidate them. Through debt consolidation, you’ll only have to pay off a single loan with more favorable payoff terms, albeit larger in sum, instead of multiple ones.
Of course, you will have to take out a new loan to pay off your accumulated debts and liabilities, but it will be easier for you to repay since you’re only going to make a single payment every month. Aside from that, you can take advantage of a lower interest rate because you’re reducing the interest drain on your payments.
Another benefit of debt consolidation is that you can improve your credit score in the process. This is because you’re reducing your debts and making timely payments at the same time, which means that you can keep your score from getting worse.
File for Bankruptcy
When all else fails, your last resort will be to file for bankruptcy. Declaring bankruptcy should always be your last option because it can ruin your credit rating for a while. With poor credit, you won’t be eligible to take out loans for at least seven years, which is how long it takes for a bad score to disappear from your history.
That said, filing for bankruptcy could be the best way to get the creditors off your back when you can no longer afford to make ends meet. Most individuals can have the option to reorganize their personal debts by filing for Chapter 13 bankruptcy. This option can help debtors get themselves out of debt when they’re buried in deep. Knowing what type of bankruptcy to file can protect their assets.
With Chapter 13, reorganization will allow you to retain your assets if you can complete a court-mandated repayment plan. Usually, this repayment period will last between three and five years, after which all your unsecured debts will be discharged regardless of the amount of payment that your creditors received.
Getting yourself out of debt is only the first step. If you don’t change your spending habits or be more careful with how you spend your money, you’ll be back to square one faster than you can reach out to swipe your credit card at the store. Debt is not something that you can ignore until it goes away.
Tackling your debt may be a slow and painful process, but it’s worth all the effort if it means gaining financial freedom. It may take a while before you can freely say that you’re out of debt and that you have a firmer grasp on your personal finances, but that will only make the anticipation more rewarding.