Everyone at one point or the other have found themselves in either small or big debts. It’s not uncommon.
Companies or business owners borrow constantly to finance their business; students borrow to finance education; and people borrow when unforeseen expenses arise.
It becomes a burden when it piles up so much that it becomes hard to get out of, or to payback, leading to financial setback.
Call Your Creditors
The worst decision we can make when in debt is to hide.
The longer we do this, the more difficult it would be to resolve our issue. I think the first step we should take is to call our creditors to explain our present situation.
Creditors could be commercial or micro-finance banks, fellow business partners or even friends. They might be aggressive or furious, but they’ll be informed, at the very least.
- Have a clearly stated payback plan before calling.
- Do not make promises you cannot keep.
Following this step might result in the following:
- Creditors might reduce the payment.
- Might extend the period of payment
- Might reduce the interest rate on the money borrowed.
- Or charge debtor to court or jail.
This approach might not lead to a positive end result for everyone, but once in debt, we owe creditors a trail of information that assures them that they’ll get their money back.
Cut Spending And Make A Realistic Budget
A quick approach to getting out of debt is to cut our spending. This seems really hard but it’s inevitable.
A way to do this efficiently is to save, make a realistic budget weekly or monthly and stick to it.
Stick to it!
I am repeating this again because it is easy to prepare a realistic budget, but carrying it out and following it is the hardest part.
When doing this, we can take note of the following:
Review what you spend money on the most and try to cut down cost.
For example, I spend a lot on data subscription and I’m presently cutting it down.
Cut down wants (luxury items) and focus more on needs.
Allocate spending ratios to expenses e.g 15% to food, 7% to clothes, 20% to transport etc.
Make sure after preparation, you have enough left to pay installments of your loans/debt.
Doing all these, would help save towards paying back the debt.
This article originally appeared on Piggybank.ng. Follow them on Facebook , Twitter , and Instagram.
DIY: How To Improve Your Personal Finances
Even if you’re not looking for a property this exact second, you always want to be improving your position.
So, focus on the downtime to improve your finances, get your debt squared away, and put yourself in a better position when you are ready to buy!
It’s important to be sure of your financial position before you buy a property because you might find it’s harder to get that property than you would have originally thought.
Here are a few ways to quickly improve your finances to help you save more, pay down more debt, and qualify for better loans.
One of the most common reasons that people struggle financially is because they simply don’t pay attention to what is going on in their own financial life. If you are not paying attention, you can’t hope to know what is going on and therefore know how to improve matters.
So, the first item on your list is to start paying attention to your finances!
When I’m working on a project, I’m laser-focused on the budget, the details, the costs, etc. But, sometimes in my personal life, I let this slide.
The reality is, when we do have a budget and focus on sticking to it, our bank account balances grow so much faster than when we aren’t using one.
I love to eat out, and my wife loves to buy small things around the house. One day, we looked back over the previous year of spending and found we each averaged over $1,000 per month on our hobbies!
By pulling back a little in each area, we were able to save over $1,000 per month but still do the things we enjoyed.
So, start by having a budget!
Even if you are financially well off and can afford most of what you want, by budgeting for the items and spreading the costs out over several months, you’ll find that you buy less, spend less, and save more.
Also, if you budget to pay down certain debts faster, you’ll see those balances dramatically drop!
So, do not overlook the importance of a family budget.
Save On Other Purchases
There might be a number of other big purchases you need to make before you get hold of your next property, and it is a good idea to make sure that you are only spending as much on those as absolutely necessary.
For any big ticket items, we actually start searching for them months or even a year in advance. For example, let’s consider kitchen appliances.
As you know, a full set of appliances can easily cost $5,000-$10,000 if you are getting high-end products. It includes a fridge, double oven, gas cooktop, microwave/fan, and dishwasher.
The first thing we did was go to the store and decide on two or three brands, styles and product lines we wanted. It’s hard to compare prices unless you are looking at similar products between stores.
Then, for months we’ll watch these items and their prices. Occasionally there will be sales and by tracking the pricing all year, we know which sales are worth getting or not. When we feel we are getting the best price, we’ll buy.
And by doing that, we can easily save $500-$1,000 or even more.
We did something similar with our TV, computer monitors, etc. Basically, anything that is currently working that we want to upgrade. Over the course of a year, we are saving thousands of dollars.
You might also use a money saving app to help.
Saving money in all these places will make an enormous difference when it comes to saving for your next down-payment
Pay Down Debt
With all the money you are saving by budgeting and by planning out major purchases, you might want to use some of it to pay down debt.
You’ll have to decide if it’s better to pay down debt or have a larger down payment because both will hold you back on your next purchase.
But, generally, paying down $1/month in debt is worth about $3/month in income. At least, as far as loans are concerned.
If you do decide to work on paying down your debt, I fully detail a unique debt pay down method to get you into your next rental property faster.
Increase Your Income
Most people just focus on debt, but the reality is you can only cut your expenses so much.
Income, on the other hand, has unlimited potential. So, why not focus on growing your income?
Increasing your monthly income can be done in a number of passive and active ways, and it is worth looking into as many of these as you can to find the right one for you. I outline a number of ways to increase your income in this article on how to earn $10,000 per month.
While earning $10,000 per month in side-income might seem a long way off, it’s important to start! Even if you can earn an extra $500 month now, and grow it slowly over time, it’s worth it!.
Don’t Focus on Just One Thing
As I mentioned already, focusing on just budgeting, or debt paydown can be detrimental to your overall financial goals. It’s important to combine a number of different things into an overall strategy, which includes budgeting, debt paydown, and increasing your income.
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