A debt is a debt no matter where you used the money. You are legally obligated to pay back what you owe—even if you had a life-or-death situation like an accident that required medical treatment. Sometimes, debt is the result of unwise financial decisions, inadequate investment, or merely a consequence of overspending on unnecessary things.
Loans are not a bad thing. In fact, they are an essential financial instrument that makes it easier for businesses and private individuals to grow. On the other hand, acquiring excessive debts for a long time can make your life miserable.
Be conscious of how much you owe.
Write a list of all your debts on a piece of paper (yes, paper) with information such as the name of the lender, the total remaining balance, the interest, and how much you have paid every month. From this list, you can quickly pinpoint which debts you can already pay in full so that you will not have to settle additional monthly interests. Starting with this works well for people who have collected debts from multiple lending companies or loaning agencies.
Save and invest.
You must never let debt become the reason why you have no savings. Even if you have a lot of monthly bills, make it a point to save. Little by little, the amount will grow, and once you have enough, you can start investing in it to provide more income.
Consider other sources of income such as investing.
Debt should give you more motivation to invest your money. You need every income opportunity there is. However, you have to be more careful in letting go of money if you have a lot of debt. Research the company that you are planning to put your money into before making any decisions. Know how it makes its money, who its customer is, and how many years the company is projected to be a viable business.
Consolidate your debts.
Creditors offer this service called “debt consolidation” where they combine a person’s multiple debts into a single debt. In turn, it gives the borrower lower interest rates and cheaper monthly payment depending on the credit agreement. The interest on one, aggregated debt is still less expensive than the aggregated interest on multiple debts.
Plan your budget.
A debt incurred from bad habits and overspending is more difficult to fix than when it came from a one-time emergency. You need more self-control to avoid piling up your debts. Budget your money so you can track your spending. You may use the 70/30 method where you allocate 70% of your monthly income for basic needs—including debt payment—while saving the remaining 30%. Avoid spending on luxury items and stick only to spending your money on necessities like food, water, electricity, transportation, etc.
Look for creative ways to make more money
Discover more about the things that you can do to earn more income from doing activities involving your talents or hobbies. You can walk dogs around the neighborhood as you do your regular run, or do some painting, baking, or cook to try making a few bucks out of it. You can also sell some of the things you have at home that you don’t need anymore. With a little creativity, the possibilities are endless.
There is a way out of your debts if you think it through, create a plan, and stick with it. The more self-control and effort you put into it, the faster you will get rid of—your credit card debt, student loan debt, mortgage loans, car loans—whatever debts you may have.