It is easy (and often fun) getting into debt. On the contrary, getting out of it is often hard (and not funny). In simple words, it can take you a few months to create hundreds of thousands of dollars in debt, but it can take you decades to pay off that debt. But like you’re about to find out, managing debt is all about sound financial planning. It is also about financial discipline. In simple words, come up with a plan, stick to it, and before you know it, you’ll be off the proverbial rat race. Read on to learn more about starting up savings for emergency funds.
Stop Creating More Debt
Unless it is extremely necessary, stop creating more debt. Necessary here means your car is broken, rent is due, or you suddenly have a medical emergency. In these cases, a payroll advance would be in order in these true emergencies. After all, you would be trying to avert a debt pile up by going for a short-term solution before your next paycheck.
Note that by stopping to create more debt, you won’t be getting out of debt, but at the very least, your debt situation will not get worse. Reduce the urge to create more debt by freezing your credit or even cutting up your credit cards. It is hard, but then again, it is doable.
Consider Increasing Your Monthly Payment
The rule here is simple. The less you put towards your debt balances each month, the longer it’ll take you to pay off your debts. Notably, interest can exponentially extend the timelines of your debt repayment. For any remaining debt you have, balances will rack up the interest charges every month.
Take your credit card debt, for example. As of February 2020, the average credit card interest was approximately 15%. This means that any credit card debt you have worsens by as much as 15% each month. Increase your monthly payments, and everything changes. You get to reduce the balance that was subject to the 15% interest. That’s why there are few times when you should consider an advance on your paycheck when it makes financially sense to avoid excess late charges and overdraft fees when a payment is due. Remember, these payday loans are meant to be short-term.
Note that it is only okay to pay the premiums on some of your credit cards when you have a solid debt repayment plan that requires you to make a lump sum payment on one of your credit cards. The goal here is simple. Make significant dents in at least one or even two of your outstanding balances each month.
Create Emergency Funds
Creating emergency funds sounds counter intuitive if you’re trying to manage debt. You could be using the money you intend to set aside to pay off your debt instead of depositing it in a savings account. But that’s a one-sided and risky way of paying off debts because it means you have to assume you won’t have to deal with emergencies.
Interestingly, emergency funds can actually go the extra mile to help you refrain from creating more debt. Think of your emergency fund savings as the rescue boat you row amidst the storm after the ship you were cruising in sinks – the vessel that helps you row to the shore. Your emergency fund will undoubtedly save you from reaching out for your credit card. Note that an ideal emergency fund should be between six and 12 months’ worth of living expenses. However, you can start by slowly building up at least $500 or whatever you can manage to put into your savings account. Also, consider researching ways that the government is assisting in your financial emergency because of the Covid-19 crisis.
Focus On A Specific Debt
Pick a specific debt and give it all you’ve got. Financial experts often advocate for increasing minimum payments by just a little. There’s nothing wrong with that strategy, only that your payments will drop by a tiny amount each month. Why not make more significant and noticeable progress by making a lump sum payment to one of your accounts every month until that debt is ultimately settled? As you do this, try to make the minimum on all your other accounts. Do the same for another debt, then another until they are all paid off.
Request For Lower Interest Rates
High-interest rates keep you in debt longer than necessary. It is easy to understand why – much of your payment goes straight into the monthly interest charges and not toward your actual balance. Unknown to many borrowers, though, interest rates can be negotiable. All you have to do is ask. Note, though, that lenders do this at their discretion. That explains why you need to be careful when looking for a pay advance lender. Go for one you can easily approach. Customers with excellent payment histories are more likely to negotiate for lower interest rates successfully.
Take Advantage of The Situation
Chances are, you now work from home. That means you no longer have to buy coffee on your way to work or spend on a midday snack. Save up the cash you’d have used on such treats and use the money to clear up some of your debt.
