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Your debts are piling up, you’re beginning to feel overwhelmed, and you want to turn your financial situation around. Congratulations on taking the first step! As fast as you want to make things better, however, we have to be honest with you…it’s not going to happen overnight. That’s the bad news.
The good news is that with a little time and dedication on your part, you can get out of debt—and maybe even sooner than you think possible. Here’s how to get started:
- First, stop creating new debt. Put your credit cards away (some people freeze them in a block of ice to prevent impulse spending) and commit to using only cash for your purchases.
- Decide how much you can comfortably put towards reducing your debt. We stress comfortably, because if your budget is stretched too thin, it’s easy to get derailed when something unexpected comes up (such as a higher than usual electricity bill or a child needing new shoes).
- Establish a savings account and arrange for automatic transfers to it on every payday, even if you can only put $20 per paycheque toward it. This will do two things: it will get you in the habit of saving (which will in turn help you not return to bad habits once your debts are paid); and it will give you an emergency cushion (for those higher bills or shoes) that can help keep you from backsliding during your repayment plans.
- Focus on paying off one debt at a time. You’ll need to make the minimum payments on all your debts, of course, but you should put whatever extra you’ve decided you can afford towards paying off just one of them. You can choose either the one with the highest interest rate (you’ll save more money in the long run), or the one with the lowest balance (you’ll pay it off faster, giving yourself the added incentive of quick results).
- Keep making the same payment on the debt you’re paying down, even when the minimum payment decreases. For instance, if your initial minimum payment is $50 and you can afford to put an extra $150 towards the debt (for a total of $200), always pay $200. Each time you make that payment, more of it will go toward paying down the principal.
- Once that one debt is paid off, close the account—then put whatever payment you were making on it (remember that $200?) towards the next debt you want to pay off.
- Repeat steps 5 and 6 until you have paid off all your unsecured debt.
It’s important to remember that the best laid plans can sometimes be derailed:
- Expect setbacks—they happen—but be prepared to regroup and keep at it.
- Be patient. It took a long time to get to where you are now, and it’s going to take a while to turn things around.
- And finally, be reasonable. Yes, you want to cut back on your spending, but don’t overdo it. Depriving yourself of any and all rewards will just make you miserable—and it will increase your chances of giving up. Stay calm and focused, however, and you absolutely can pay down your debts and enjoy a financially stable life.