They say it’s the American way to owe money, but the sad reality is, more than half the population spends way more than they make each month, turning to credit cards to make ends meet. Often, the idea of owing so much money is too overwhelming, so the strategy for many people is to pretend it doesn’t exist.
While this tactic works for a while, a sudden financial crisis can strike, causing you to lose whatever tenuous foothold you may have had. The resulting downward spiral can often be devastating, but if you take action fast, you can stop it and regain a more solid foothold than before.
Here are the four most reliable ways to begin digging yourself out of a financial hole.
1. Get a Small Loan
This might sound counter-productive, but in times of financial crisis where you have no emergency fund to turn to, it may be the only answer. Research several small loans and compare their terms. Look for one with flexible repayment options and low-interest payments. Once you’ve tended to your financial crisis, you can put every available cent into repaying this loan first. A bonus of this strategy is that if you repay it quickly, it will help improve your credit rating.
2. Create a Budget You Can Live With
You can’t build a house without a solid plan behind it, and the same holds true for your financial success. You can’t even hope to be debt-free if you don’t plan for every single dollar that comes in.
Start by creating a budget on paper that accounts for every dollar in and every dollar out. Create a new budget before the start of each month to make sure you’re accounting for any fluctuations in your income. It’s important to start living by your budget instead of what’s in your bank account in order to get out of debt forever.
3. Begin Building an Emergency Fund
Every good budget starts with paying yourself first. This means setting aside money in an “emergency fund” account each payday to cover those left hooks life throws at you from time to time.
If this sounds like an impossible feat, set a small goal for yourself for the first month. Try to save $1,000 in 30 days. You’ll be surprised at how creative you can be and just how doable this is when you challenge yourself.
4. Pay off Debt – One at a Time
When you look at all the money you owe, it can be overwhelming. Taking it one account at a time, however, can make the task a little less intimidating. Use this logic when paying down debt to begin seeing major progress toward becoming debt-free. Start by listing all the debt you owe on a sheet of paper, beginning with the account that has the lowest balance. Then put every available penny you can toward paying it off.
Continue paying the minimum balance on the others in the meantime. Once the account with the lowest balance is paid up, shift your attention to the account with the next lowest balance. Continue in this manner until all your debt is paid in full.
Being in debt may be the American way, but that doesn’t mean you have to follow suit. Instead of ignoring your mountain of debt, hoping it will disappear like magic, do something about it. Use the strategies listed above to begin digging yourself out of that financial hole.
These are very helpful tips. It was hard to get out of debt, but we managed it slowly.
Thank you for sharing this helpful tips. As I get older I get smarter about this kind of stuff sure wish I had known a lot these thinks when I was younger.
These are some great tips. It’s so easy to get into debt but with these tips & more, it makes it easier to get out.
It is sometimes tough to stay out of debt. I think when you are younger, those impulse purchases are very tempting. We learned early on to really tell the difference between a want and a need.