Solving your Debt Problems
Steps to solving your Debt Problems
Step 1: Accept Responsibility
Your first step is to accept responsibility for your debt. Be liable for your debts. You need to accept its existence with determination to repay and control your debt position. Failure to accept your debt problems will only allow it to continue and letting you sink deeper and deeper into debt.
Understand that your debt has repercussions on your family and others. Failure to assume control makes it difficult to do other necessary things (E.g. Save for college, Plan for retirement, and prepare for family needs.) Likewise, your mismanagement may be carry forward by your children who learn by your example.
Step 2: Rid Yourself of Instant Gratification / Desires for “wants”
You must forgo your pleasure of short-term "wants" for the more important long-term "needs" to reduce your debt. When buying something you see, assess whether it is a “want” or “need”. A “want” is something that is extra and it does not matter whether you have it or not (E.g. Jewelry, Branded goods, PSP etc.). A need is something that is necessary for your survival (E.g. Food, Shelter etc.) Hence, there is a difference in importance. Only satisfy a “want” when you have satisfy all your “needs” and ensuring that you can afford your “wants”. Cutting down on “wants” include the following examples:
- Not eating at classy restaurants all the time.
- Taking buses instead of taking taxis.
- Not buying the latest gadgets.
- Do not go after branded goods, buying other economical brands would suffice.
Hence, do not buy on impulse if you do not have enough money to pay for what you buy. Refer to the article on spending.
Step 3: Establish a Monthly Budget
You need to plan and quantify your expenses for housing, food, transportation, savings and paying down your debt. Planning how you spend your income is very important. Without planning, a person does not use the money he or she has wisely, leading to unnecessary spending and hence incurring debt.
Budgeting disciplines your spending habits. It restricts buying for items you need, forcing the "wants" to a future day by saving and planning.
Step 4: Set Financial Goals
Your first goal is to reduce and eliminate your financial debt. In addition, you need to set your sights on the following goals that are important and absolutely necessary such as:
- Saving for studies.
- Saving for a house (in the future).
- Saving for emergency cash.
- Saving for retirement.
These goals will constantly remind you what you have to achieve hence restrict your spending and make you think twice with what you are going to do with your money.
Step 5: Setup a Debt Repayment Plan
Finally, you need to establish a debt repayment plan. It is more important to repay your debt as it would rid you of further interests incurred by it. It generally involves the following:
1. Debt Consolidation: This allows you to consolidate your debt into one, low monthly payment.
2. Budget Planning: You need to establish a budget line item that allocates a percentage of your income for debt repayment.
3. No More Debt: You need to restrict your use of credit cards and other retail incentive programs.