Debt is one of the few stressors in life that does not go away easily. Most dangerous thing about debt is that it gives so much stress that person falls victim to chronic diseases. Most stressful things in life-a car accident, death in the family, a divorce-happen and then they are over. Our bodies react to these losses and bounce back. But owing someone money completely becomes inescapable.
But if we take a closer look at the emotional, psychological and behavioral studies, it shows that there are healthier ways to spend money and decrease the debt, which will ultimately reduce the stress we feel.
We have gathered few important tips that you can follow to decrease your debt and increase your savings.
- Stop creating more debt
The first thing you should avoid is to create more debt. Increasing debt will not take you anywhere. Instead, try to pay-off your entire debt in minimum chunks of money. Although, it won’t get you out of your debt but atleast, you will not be increasing your debt. Make possible to pay-off the debt entirely in just one shot. If you can’t, it’s fine to pay the minimum on your credit cards.
- Pick one debt and pay-off completely
It’s good if you have only one debt to repay, but if multiple debts are lingering on your head, it is better to choose the one with the highest amount. In this way, a huge burden will fall off from your chest. Or make a big payment from your account every month to repay debt if you can’t do it all at once. Do the same for another debt and so on.
- Build an emergency fund
Building an emergency fund when you have already a debt to pay-off seems dull. But it will give you an edge in emergency situations. An emergency fund can actually keep you from creating more debt by providing you with a safety net you can use in an emergency. Usually, the perfect emergency fund is six to twelve months of living expenses. You should atleast make $1000 in the short term.
- Request for lower interest rate
Ask your creditor for lower interest rate on your debt. Higher interest rates keep you in debt for longer period. Your hard-earned money goes towards the monthly interest charge and not towards your actual balance. If you have a good credit history, you will easily be considered for lower interest rate request.
- Put more money towards the debt
The more money you put towards your debt, faster you will be paying off for your own good. Create your monthly budget and try to find ways where you can cut your expenses and add them to pay your debt. You can also come up with the money for your debt by selling few expensive things in your home.
- Use retirement fund or life insurance policy
Both choices are risky. Use these options when you find no other way. You may consider pulling money from your retirement fund but your savings will fall short when the time of retirement comes. Also, borrowing from your life insurance can also be considered but it will affect the death benefit your beneficiaries will receive.
- Get a second job
Getting a second job or doing second shift on work is common way for people to pay-off their debts. No one can actually make it but if it does work for you, you will be debt-free before you can even imagine. For this scheme to work, put your extra shift money into the debt repayment. These extra hours are not permanent. Once you have paid-off all the debt, just sit back and relax. You will be back to your normal routine.
- Make settlements with creditors
Debt settlement is also the solution if your accounts are past due or you owe more money than you could repay over a few years. Ask the creditor to accept a one-time, lump-sum payment to satisfy the debtor. Sometimes, creditors who agree to a settlement offer also agree to cancel the rest of the debt, but they typically accept these offers on accounts that are in default or at risk of defaulting.
- Speak with a credit counselor-it’s free
If you are really struggling with your debt and you cannot manage anymore, try credit counseling. It’s absolutely free. They will help you in finding programs that can help to deal with your debts. A reputable and honest credit counselor will explain all the options that you can avail to clear your debt. Many people do not know about the debt-repayment programs but are relieved when they come to know about it. Speaking with a non-profit credit counselor about your options is confidential, non-judgmental and a better escape.
If the debt repayment has drained all of your savings, it’s time to build your savings again. Before you pay for anything else, put aside some money into your saving account. The secret to increase your savings –whether it’s earmarked for your emergency fund or another savings account-is to pay yourself first.
Here are few tips to paying yourself first to increase the savings.
- Make a habit to save every month. It doesn’t matter if you save a single penny every month; it’s about commitment you make. If you make it a habit, it will help you towards a healthier financial future.
- Consider saving as the necessary work. Make it a priority in your monthly budget.
- When you reduce or eliminate an expense, or save any money on grocery or shopping, put it in the savings account. Any fund, bonus, raise you get should be put in the saving account.
- Always go for the job that gives you maximum benefits for example a good life and health insurance, any extra favor, free transportation etc. The less you pay for these extra things, the more you will be able to save for yourself.