We live in an era of spending where the choice of things and services that can be purchased far exceeds our ability to pay for them. This imbalance can easily push people towards student loans, credit cards, mortgages, and other forms of borrowing money.
Each year, 12 million Americans use payday loans to cover cash flow issues from pay period to pay period, but not every of them is able to repap a debt on time.
Several reasons why people can’t get out of debt
- Desire to show off. The coat of a budgetary brand warms no worse than a luxury item. A budget car gets you to work just as fast as a cool car. But many people prefer to go into debt and live beyond their means for the sake of image.
- Misunderstanding of the loan essence. For example, people often view a payday loan as an easy way to fulfill a sudden wish. I want a trendy smartphone – I’ll take a payday loan. I want expensive shoes – I will take a payday loan. I dream of going abroad – I will take a payday loan. It is important to understand that you will need to return the money + interest.
- Lack of savings. When a need arises and there is no own money to satisfy it, debts appear. To avoid it, you need to learn to save.
- Lack of willpower. Living in debt is as bad a habit as smoking or drinking alcohol. A person cannot deny himself weakness and break the vicious circle. Self-education and increasing financial literacy is the right path to success.
How to get rid of debt: some effective tips
The main problem is how to get out of debt when billboards everywhere say “spend, spend, spend”?
We have developed a detailed 10-step strategy that will help you pay off muliple payday loans, get rid of financial burden and start living without debt. It will be hard. It will take time. But it’s doable. Here’s what you need to do.
1. Stop taking new loans
First of all, you need to change your existing behavior and habit of spending money, which in the first place led to such a financial condition. This means that you must stop increasing your debt right now.
Take out your wallet and get rid of all your credit cards to avoid the temptation to spend more. You can lock up your credit cards, give them to a close friend, or freeze them by contacting your card issuer, or literally put them in the freezer.
You also need to review your budget and how you spend your money. Quit expensive habits like luxury travel, gym memberships, tech kit subscriptions, or even smoking and drinking; use this money to reduce your debt.
2. Determine the amount of your debt
It can be scary to admit exactly how much you owe. But this is the part where you need to be an adult and confront your fears, in other words, face your debts in order to better control them.
Make a list or table of all your debts, including:
- who you owe
- total debt
- terms of debt payment
- monthly payments.
The point is not to just create a list and forget about it. Update the file as the amount owed changes, especially when you pay your bills. This will give you a sense of accomplishment and the understanding that getting rid of debt is indeed possible.
3. Pay more than the minimum payment
Increasing your monthly loan payment is one of the best ways to pay off debt sooner, whether your debt is credit card debt, personal loans, or student loans.
Because here’s the thing: when you make the minimum payment, you end up paying a larger loan fee than if you paid off your debt in larger payments.
Thus, it is not only a way to save hundreds, even thousands of dollars, but also to speed up the debt repayment process. Just make sure your loan doesn’t have prepayment penalties before you increase your minimum payment.
4. Make additional payments as soon as possible
Take a minute to think about what is your strategy when you want to buy what you really need? Chances are you’re putting aside any surplus money you get, saving day by day until you’ve got the amount you need.
This should be your approach to paying off debts. As soon as you have extra money, use it to pay off your debt and do it as often as possible. In some months the surplus will be zero, in other cases you can send 50 dollars. The important thing is that these small steps will help you get out of debt faster.
5. Sell what you don’t need
If you’re not Marie Kondo, you probably have a lot of stuff in your house that you no longer use. You should look at things like old clothes, furniture, video games, etc. as extra money.
Here’s a plan for you. Collect everything that you no longer need but may be useful to other people, and sell it. Organize a sale in your yard or sell these things on eBay, and use the money you earn to pay off your debt.
6. Pay off one debt
In 2016, Harvard researchers found that the most effective approach to getting out of debt is to focus on paying off the smallest amount of debt, also called the snowball method. It works like this:
- Make a list of all debts, from smallest to largest
- Pay the minimum amount on all but the smallest debt
- Pay as much as you can every month on the smallest debt until you pay it off in full
- Move on to the next small debt.
Try this method for yourself and see if it works. Psychologically, this can have a positive impact and help you see the light at the end of the debt tunnel.
7. Make enough money to get out of debt
Paying off debt is not a time to relax. To maximize your efforts, consider if there are ways to make more money.
You can start by asking for a promotion (if you’re doing well in your current job) or applying for a new, better paying job. If you have useful skills and hobbies, monetize them. Think of any passive sources of income that come to mind. You can also visit platforms like GoWorkABit or Wisestly to find part-time jobs and earn extra money.
And most importantly, don’t forget to use that money to pay off your debt, not to buy a new pair of slacks.
8. Refinance a loan
In essence, refinancing a loan means that you take out a new loan to pay off one or more existing loans. This is usually done to get lower interest rates or otherwise reduce the amount that needs to be repaid. For example, student loan refinancing is often used to bundle multiple loans into one payment. Also, loans to individuals are often used as a way to refinance credit card debt.
If you are looking for loan refinancing options, then you need to study the details of your current loan agreement and compare them with those offered by other lenders in order to find the best option for your own financial goals.
Check for prepayment penalties on your current loan, as the cost of refinancing may be less than the cost of prepayment.
9. Extend your loan
In some cases, you may be able to extend your payday loan. It makes sense to take advantage of this opportunity if financial difficulties are of a short-term nature, for example, your paycheck is delayed (but you expect to receive it soon).
The service is provided in many microfinance institutions, and it may be accompanied by various conditions. Thus, our company offers small-dollar, short-term loans with the ability to extend debt repayment. The cost of the service depends on the amount of the principal debt and the duration of the delay – 7, 14, 21 or 28 days. Often, the client can extend the loan online.
10. Seek professional help
If you feel like coping with debt is too hard, don’t hesitate to seek professional help.
If you are unable to control your costs, you can seek help on the Internet: financial forums, groups, articles, etc.
What you must NOT do when you have multiple payday loans
- Do NOT take new loans to close old ones – any of the new loans will not solve old problems but will only create new ones for you. If you take the following loans, it is recommended to borrow small amounts of money for a short period of time.
- Do NOT hide from the creditor. The lender will definitely find a way to contact an unreliable debtor. To do this, they use proven tools – these are credit bureaus and collectors. To get accpeted for a loan, you often need to provide collateral or a guarantor, who may suffer if you default on your loan. Among other things, you may be charged large fines.
Summing up
If you have any debts or even if you just owe a few friends, now is not the time to bury your head in the sand. Start working on your obligations, and in the end you will be grateful to yourself.