You are more vulnerable to debt during the festive season. Priorities switch from your finances to the feelings of your loved ones. As the festive season approaches, expenses begin to burn a hole in your budget. You might even want to borrow money from a direct lender.
Once the festive season is over, you eventually realise that you are in the red. While decorations will be back in the box after a few days, festive spending will continue to cast a long shadow over your household finances.
Getting into debt is easy, but tackling it is not easy at all. Most of the people often ask whether there is any way to get out of debt. The fact is there is no straightforward and single method to deal with the debt. You will need a combination of strategies. It depends on your individual circumstances. You cannot trust the methods that your friends use as their financial situations might differ from you.
If you are looking to get out of debt, first, you need to identify the culprit. You may be overly reliant on credit cards or spending too much money on impulsive purchases. However, these clichéd causes may not be applicable to everyone.
A lot of people, according to a report by a debt management company, fall into debt because of low wages, bereavement loss, ill health, redundancy, and soaring inflation. In order to tackle your debt, you need to check what you can do to fix issues.
Tips to get rid of debt as fast as possible
Here are the tips to use if you are actually serious about getting rid of debt:
1. Learn to live without debt
The first rule to get out of debt is to start living below your means. It means you should learn to spend less than you earn. The more carefully you spend, the more control you will have over your budget. Here are the strategies to stop piling up more debt:
2. Create an emergency cushion
You must have heard several times that you should create an emergency cushion. It is a sum of money that you stash away to dip into when being caught by unforeseen expenses. An emergency cushion should have the potential to cover at least six months of expenses.
When you are laid off, you can take a bit longer time to land a new job, so you should have enough money so you can survive at least six months without turning to a lender for any financial help. Set a limit and make sure you consistently put by that sum. Do it as soon as you receive your pay cheque. You should rather link your pay account to your savings account and opt for direct debit or auto transfer.
3. Make a budget for big purchases
Just because you can easily take out personal loans to make more significant purchases like cars, education, etc, it does not mean that you will completely ignore setting aside money for these purchases. As you know, you need at least 10% of the sticker price of the car as a down payment. You can start saving money quite early, so you have a larger sum to pay upfront. This will whittle down the loan-to-value ratio and will save the interest payments. Make sure you do not withdraw from the emergency cushion for planned expenses.
3. Do not kill fun
Although you need to have to live beneath your means, it does not mean that you will not have fun at all. A rule of thumb says that your budget should have room for recreational activities as well.
4. Consolidate debts
When you have too much debt and most of them carry very high-interest rates, it makes sense to consolidate your loans. Lenders can provide you with guaranteed debt consolidation loans with bad credit, but most of the lenders approve consolidation when your credit rating is stellar.
You should have a good credit score to consolidate debts. If you have already fallen behind on payments and your credit score is damaged, a lender will most likely turn you down. If you somehow get a consolidation loan, you will get money at a very high-interest rate.
In this situation, you will have to consider two other options, such as debt avalanche and debt snowball methods. It depends on your financial circumstances whether you will choose to repay high-interest debt or you will go with smaller-sized debt. If you cannot decide, you should consult a financial advisor. They can help you choose the best strategy after reviewing your financial condition.
5. Lower your interest rates
Debt consolidation is one of the methods to lower your interest rates, but if that is not possible, you should choose 0% interest-free credit cards. These cards are best known for transferring your balance to an interest-free credit card.
You will be given a specific time period to clear all your debts. If you fail to repay the debt within that timeframe, you will end up paying even way higher interest. Do not forget that you will have to meet the eligibility criteria to qualify for a 0% interest-free credit card.
6. Increase your income
Undoubtedly, you will have to increase your income to get out of debt. The first step you take toward the settlement of debts includes budgeting. You will have to create a budget to check your monthly expenses. The next step is to cut back on discretionary expenses. The tighter the spending, the better.
However, trimming down your budget is not enough, especially if you have taken on too much debt. You should try to increase your income. If getting a job with a higher pay is difficult, you should try to earn money through freelancing.
A lot of freelance platforms are out there. You can get several clients there and earn extra money. Other ways to increase your income include investing. When you invest in stocks, bonds and mutual funds, you will earn handsome returns.
Do not forget to consider safer investments like fixed deposits. If you are new to the investment world, you should consult an expert before dipping your toe into it. Experts usually do not recommend investing money when you are in debt, but as pressure increases, you should also start creating your investment portfolio.
The bottom line
There is no fastest way to get out of debt, as there are a lot of factors that determine how soon you will be able to bounce back. Of course, when you have taken on too much debt, you will certainly take a longer time to get rid of it.
You should be careful with spending so you do not borrow more than your affordability. Understand the nature of your expenses and ask yourself if it is actually urgent. Try to emphasise an emergency cushion instead of borrowing money. Your savings can keep you from paying interest.
Maintain a balance between your earnings and spending so you do not find yourself in the red even during the festive season.
