Accumulating debts can be irritating and frustrating. It does not give you peace of mind and the potential of your hard-earned money to earn more is hindered. You are obliged to allocate a certain amount every time instead of investing the money. Because of this, it is essential to know the 3 E’s of getting out from the grip of debt.
1. Establish. It is important that you establish what and how much your debts are. Deciding to get out of debt is like going to a battle, you should know your enemy. And the first thing you need to do is to consolidate it. Categorize your debts according to types like Credit Card, Personal Loan, Housing Loan, etc. After that, you need to know the interest on how much your debts are incurring. You can refer on the table below as a sample of consolidating your debts.
Once you finished consolidating your debts. You can go to the next E.
2. Eliminate. This time you have an idea and understanding of your debts. Now you need to apply your discipline to get out of them. First thing you need to know is the target date when you plan to get rid of the debts. This will give you an exact amount how much you need to allocate every month. You can get the amount by dividing the total debts by the number months/years that you plan to pay everything. After that, it’s time to eliminate them. There are 2 ways that you can use to fulfill this.
a. Buy-out method. You can look for an institution wherein you can get a loan with lower interest than your current debts and pay all your debts that you established earlier. In this way you are relieved from the excess interest you have and will give you an opportunity to talk to only one entity instead of talking to different people.
b. Debt Snowball Method. This method is used particularly for multiple debts, eliminating the smallest balance first and paying only the minimum or the interest on the larger debts. This will give you focus on removing the smallest debt from the list. The amount that was freed from you can be used to pay the larger debts. Imagine a snowball that goes down a slope, it becomes bigger as it rolls. The same thing when paying debts, the amount that you can allocate becomes bigger as you finish one debt at a time, starting from the smallest.
If your income is smaller than your debt, try to work and look for opportunities to make more money instead of borrowing.
3. Enjoy. Paying off your debt is like removing a fishbone in your throat. You will fill a relief because a part of you is freed from financial bondage. This is also a milestone in your life especially if you are buried from debt for a long time. Try to enjoy a simple treat for your self because you remove one debt from your list. And every time you eliminate an item, you repeat celebrating. Please note that celebration should be simple, it should not be arranging a lucrative travel vacation to Maldives or having a huge party.
These 3 E’s are very effective to help you alleviate your concern in managing debts. Getting out from the grip of debt will give you a fair chance to build your wealth faster than you can think of.
What are other ways you can do to get out of debt? Share your thoughts and meet us in the comments.
Photo Credit: Debt