8 Powerful Tips on How To Get Out Of Debt

The advent of technology makes it relatively easy to access loans. You can take a loan from licensed digital lenders, banks, shy rocks, and unlicensed lenders among other institutions offering loans. Coupled with a society that believes in you live only once (YOLO) and the fear of missing out (FOMO) most people end up having multiple loans.

How can you manage multiple loans and get out of debt? It’s important to learn how to manage your income so can be able to cater to your needs, wants and repay your debts. In so doing you avoid the risk of defaulting and ruining your credit score.

how to get out of debt

In this article, we look at smart ways of managing multiple loans. It’s important to budget your money and keep track of all your spending. If implemented right, you can save money and pay your debts on time. We look at how to manage multiple loans and effective debt management strategies you can implement to help you get out of debt.

how to get out of debt

 What is Debt Management?

Debt management refers to planning on how to repay your credit cards debt, mortgage and any other loans and ensuring you get out debts. It involves budgeting one’s income and ensuring you pay your debts on time without compromising your lifestyle. You will need to have a strategy to ensure your income covers the debts, needs, and wants without having a cash deficit.

It’s the ability to manage multiple loans without defaulting. However, if you find yourself in a debt trap you will need a strategy to get out of debt. The goal is to gradually decrease one’s total debt until one is finally debt free.  To clear your debts must have a plan on how you allocate your income to the different expenses and debts.

Tips on How to Get Out of Debt

Create a budget

A budget is a plan on how you intend to spend your money. Create your budget and break it down into expenses, savings and debts. Strictly adhere to the set budget and eventually, you will be able to start saving money.

Here is a sample budget template you can use to create a budget. The expense breakdown will vary from one person to the other.

budgeting to help you get out of debt
Make a list of all the debts you owe.

The next step is to make a list of your debts in order from the highest to the lowest. This will help you know how much you owe. After listing all the debts, you can add a column on how much interest and penalties you are accruing. This will give you a clear picture of the most expensive debts. Here is a debt template you can use to list all the loans you owe.

Get out of debt

You can then apply either of the two recommended methods to be able to clear off your debts.

 These methods are:

  • Debt snowball

This essentially means paying off your small debts first and then working up to bigger ones. It is good for motivation as your debts reduce.

  • Debt avalanche

This means paying off debts with the highest percentage of interest accrued and then working your way down. It helps in managing debts with high accruing interest rates. It also helps one save money that would have been paid as interest if one had used the snowball method.

Consolidate your debts

Debt consolidation involves taking one loan to clear all other debts. Consolidation of debt minimizes the chance of missing any monthly repayments, helps improve your credit score, and gives you a longer loan repayment tenure. Plans such as the KCB debt consolidation will help you manage multiple loans, and you can get out of debt comfortably.

Repay debts promptly

You can avoid being listed on the CRB if you make timely payments. It also prevents the debt from gradually increasing because of additional fees and accrued interest rates.

Get a calendar and add a notification on when each loan is due. Make sure you don’t miss any repayment. If you are unable to pay because of unforeseeable circumstances, you can make partial payments to avoid being listed on the CRB.

Recognize that you need assistance

If your debts get out of control, you can ask your employer for a salary advance. They can deduct your monthly repayment from your salary before you get paid. This minimizes the chances of accruing additional interest and penalties.

You can also talk to a financial advisor who will walk with you and guide you on how to get out of debt. They will advise you on which debts to pay first and how to negotiate for more time to make the payments.

Increase your debt repayments whenever possible

Getting out of debt can be a challenging task, but there are steps you can take to accelerate the process. One such step is increasing your payments. By making larger payments, you can reduce the balance on your debts faster, and ultimately save money in interest charges over the life of your loans.

To start, review your budget and see if there are areas where you can cut back to free up additional funds for debt payments. This can help you save money on interest charges and simplify the repayment process.

Another option is to negotiate with your lenders for more favorable repayment terms. This can include reduced interest rates, waived fees, or extended repayment periods. Be sure to explain your situation and why you need help to get back on track with your payments.

Ultimately, the key to getting out of debt is to be consistent and disciplined in your approach. By making a commitment to increasing your payments, you can achieve your goals and regain control of your finances.

Make the bare minimum payment

Making payments can be difficult at times, especially when other bills still need to be paid. However, it is important to pay the required minimum payment. This ensures that your loan or credit cards does not default, and no additional penalties are applied to your existing loans or credit cards.

Know your debt to income ratio(DTI)

Getting out of the debt cycle can be challenging, but knowing your debt-to-income (DTI) ratio can be the first step towards becoming debt-free.

The DTI ratio is the percentage of your monthly income that goes towards debt payments. The formula for calculating DTI is straightforward: divide your monthly debt payments by your monthly income and multiply it by 100. For example, if your monthly debt payments are $1,500, and your monthly income is $5,000, your DTI ratio would be 30%.

A high DTI ratio can be an indicator of financial stress, and it can affect your ability to get approved for credit, including mortgages, credit cards and car loans. Ideally, you should aim for a DTI ratio of 36% or lower. If your DTI ratio is over 36%, or you are struggling to pay off debts on time, it might be time to review your budget and consider a debt consolidation plan.

In conclusion, have a clear understanding of your DTI ratio and taking necessary steps to lower it can be the key to get out debt. It is highly recommended to seek advice from professionals or financial advisors to get a better picture of your debt situation and explore viable debt-management options.

How to become debt free in the shortest time

Look for a side hustle

An extra income will come in handy in helping you repay your debts. If you have any free time, consider taking up an income-generating activity. Allocate the extra money you earn to debt repayment. There are online side hustles such as online freelancing that will help you make an extra income. Examples of side hustles you can do in your spare time include the following

  • Freelancing
  • Affiliate marketing
  • Event planning
Reduce your discretionary spending.

Undoubtedly, you will be tempted to spend money on frivolous items such as a new dress, new shoes, going out for drinks with friends, and so on. As much as these things are important in your social life, it is important to put them on hold first.

It doesn’t mean that the hold is indefinite, just until you can get a hold on your debt situation.

Create an emergency fund

Once your debt situation improves, start building an emergency fund. This is essentially money set aside to deal with unexpected expenses. It helps to create a temporary solution in times of emergencies instead of using credit cards or borrowing loans that have higher interest rates. This prevents one from getting into debt.

To start an emergency fund, first, create a budget. You can use the 50-30-20 rule to start your saving journey. Ideally, an emergency fund should be 6 times your monthly expenses. This means you have a buffer of six months in case something happens to your income. Use our 50-30-20 rule calculator to see how you should allocate your income.

Start investing

The best way to stay debt free is to ensure your money works for you. Invest your emergency funds in low-risk, high-liquidity funds. You can also explore different savings accounts and pick the savings account with the highest interest per annum.  Money market funds ,are the best investment for beginner investors as they have high liquidity, low risk, and an interest of 8% to 11% p.a depending on the terms of the fund.

Final thoughts

There is no one-size-fits-all answer when it comes to managing multiple loans, but there are some smart ways to go about it. By consolidating your loans, automating your payments, and staying disciplined with your spending, you can get out of deb and save yourself a lot of money in the long run.

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