With a new year, there are a lot of new hopes that come around and one of the most desperate ones is â€śHow to Get Out of Debt in a Year?â€ť. When we think of starting off with a new year, we definitely donâ€™t want any previous burdens to drag us down.
Be it a broken relationship, a bad job and especially we NEVER EVER want to start off our new year with Bad Debt!
And you must be wondering that I might be a bit late because 2019 has already begun and down with 2 months. But you need to focus on the fact that it is the year 2020 to which you donâ€™t plan on bringing your debts along.
And to achieve this goal, a simple plan on How to Get Out of Debt in a Year needs to start RIGHT NOW!
So, all you have to do is follow these steps. In fact, I would say to take out a hard copy of this read and start following it step by step.
Letâ€™s begin our journey OUT of Debt.
You canâ€™tÂ make a plan to get out of debtÂ if you donâ€™t know how much debt you have. So, the very first thing that you need to do in the process of coming out of debt is actually knowing How much debt you have.
Take a pen and paper and write down all that you owe, even if it is a single dollar that you owe to your friend.
So now that you know what amount you owe and to whom, here comes the next step. You need to list down all of your regular and necessary monthly expenses.
Like what you spend on grocery, date night, travel etc. Make sure that you pen down even the smallest and the weirdest of the spends that you make.
You need to know it all and figure out for yourself about the ones that can be eliminated.
Debt can be crushing, and sometimes what is preventing you from paying it off faster is other expenses.
Mortgage/rent, car payments, groceries, gas, utilities â€” all these add up quickly, and they leave less cash for you to pay off your debt.
Now that in the previous step you know what amount you spend on various things it is time to compare. Sum up the amount that you spend monthly and compare it with your paycheck.
If your paycheck looks smaller than what you spend then this is the very first red light which you donâ€™t want to jump. So obviously it is time to hit on the Brakes and not to let it go.
IfÂ trimming a little here and there, like getting takeout less often or limiting the number of times per month you go out with friends can help in reducing your debt, then thatâ€™s a good place to start.
But if these measures will be a drop in the bucket, you might have to make some more drastic changes.
If you have a huge car payment, consider selling your car and getting a cheaper one. If you are struggling to meet your rent, you might do better in a roommate situation.
After realizing what you owe, the next step to do is make sure not to make any hasty decisions of spending huge amounts on any required investments.
If youâ€™re planning on getting a new car then STOP, plan on getting a new home then STOP and even if you plan on getting married or having a kid you need to hit the Snooze button for some time.
It is extremely important for you to get out of your previous debt before making your way into new ones.
Till now you must have realized that paying off your debt in one go might not be the best-suited thing for you to do.
You need to understand that a proper cash flow should be maintained and you need to have some funds at hand, be it for an emergency or any other requirement.
Never opt for paying out loans or making any bulk payments. Use the snowball method, which is actually the 19th Step. So, keep on reading and follow every point.
Borrowing from your 401(k) isnâ€™t always advisable, but sometimes it can be a good idea. It depends on your age (if you are near or far from retirement), the size and scope of your debt and your other financial obligations. Timeâ€™s Money talks about some pros and cons of this option.
Could the Bank of Mom and Dad help you out? Loans from your parents typically come with low-interest rates. However, depending on who your parents are, they might also come with long lectures and lots of nosy questions. So, you have to decide for yourself if this is worth it.
Now that youâ€™ve put a STOP on making any huge investments, the next step is to deduct all the unnecessary expenses from your balance sheet. Itâ€™s definitely not rocket science and you definitely do not require help from an accountant.
Instead, this is a simple step of observing about the things or the activities that you do which donâ€™t end up helping your pocket. Plan to cut down your movie date nights and instead enjoy some personal time at home.
Avoid wasting food and other grocery items, check on the expiry date before purchase.
You already know all of these things and all that you have to do now is to put a stop on these â€śDebt Creatingâ€ť activities.
It definitely has become a trend to convert your hobby into a Money-making hobby, and this step is all about it. List down the things that you love doing in your free time and point out on the ones that can get you paid.
There is a huge list of part-time jobs which help you earn some extra bucks in your free time and this list includes some cool jobs as well like walking a dog, or wedding photography.
Well to know more about how you can turn your hobby into paying part time job check out this link.
If you accrued your debt by racking up medical bills or student loans, you may still have to deny yourself some pleasures while you pay back your debt. This step is all about making a few adjustments in the way you spend.
So, If you:
Then you need to deal with these deeper-seated issues before you can ever expect to get out of debt. Repeatedly cleaning up the water without plugging the leak will not work in the long term.
When youâ€™re short on money, itâ€™s easy to convince yourself that you donâ€™t have the funds to get counseling for your problems. But sometimes you canâ€™t afford not to. However, before you spend your own money, consider these helpful sources:
The next step comes with an exciting challenge of making a monthly budget on food and how the cost can be reduced. You need to shop in bulk for all the non-perishable items as most stores provide discounts on bulk buying.
Create a budget of the healthy things that you should consume and cook your meals in bulk, deep freeze them for later use as this is cost and time efficient.
You can also choose to buy stuff online as most Online Stores provide huge discounts and offers. Simply check out Target and Walmart for your bulk purchases.
The next step in the quest to answer How to get out of Debt in a year is realizing a simple fact that there are various coupons and vouchers available for us which offer huge discounts and sometimes even free meals.
Start stacking up all the coupons that you get and use them on the next purchase that you make.
You can literally Start Living for Free as these apps are here to help you.
This next step might prove to be a tricky one, but trust me it is the most efficient one.
When we shop full price, it is just our heart that is content with the fact of buying something that we love. But what about the mind that is trying to show you the cost which you think you can but you actually cannot afford.
It is best to eye out for an amazing dress but always plan on purchasing it only when it comes at discounted rates.
There are various stock clearance sales which provide best clothes with huge discounts. So, always shop in these sales and donâ€™t put a hole through your pocket trying to shop full price.
By now I definitely do NOT want to sound too strict and upset you with the fact that you need to restrict yourselves from buying stuff.
So here comes the next step where Iâ€™m assuring you of the fact that if an important event comes up then you can plan to spend a little on the same.
List down the things which are of at most importance and you definitely cannot survive without them. Do buy them but try to redeem some reward points or use some coupons to reduce the price.
You can also register yourselves on ILoveSamples and get amazing stuff to try out for free.
Not asking you to completely restrain yourself from going out but yes, you need to reduce your number of hangouts and plan of fun things to do together at home.
After all your family needs all the undivided attention of yours, so simply plan on an indoor picnic with home cooked meals. Movie nights can turn in to family movie night on your TV screens at home, so borrow some DVDs from friends and enjoy.
If you take a lot many take outs then now is the time to stop doing that. Cooking your own meals gets you the required nutrients along with reducing the cost as you need to cook in bulk and store it.
Even take outs tend to end up becoming costly as the fast food joints and restaurants definitely do earn their profits from your meals. So, start from scratch cook your own less costly delicious meals.
How to get out of debt in a year is the Question and you need to understand that the answer to this requires some efforts and even sacrifices (For a short duration of time)
So, in this next step, Iâ€™m going to ask you to cut off all the unwanted subscriptions which include Magazines, Gym memberships, Club memberships and Games or TV expenses.
Entertainment is definitely important but it is a simple fact which we never realize that a lot of expenses we are making are actually not required at all.
All I ask out of you is to stop these Paid Subscriptions, get out debt and then again you can have them back later on.
If youâ€™re willing to watch a Good Series online then subscribe for FREE on Hulu and start your obsession of Binge Watch.
This can not only help you get out of debt faster, but it can also help you save money. When you consolidate your debts, you have one monthly payment to make, and itâ€™s usually at a lower interest rate.
You may not know how much youâ€™re paying in interest on your debt now, but if you did, you might be shocked! So, consolidating can help considerably.
If you want to know more about what options you have for Consolidation and Refinancing then this read is sure to help you.
Time to move on to the next step and realize a simple fact that Snowball has proven to be the best method time and again when we think about rolling our way out of debt.
So, begin with all the small payments and bills that you have to pay and then move ahead towards the big bucks. In this step, you also need to realize a simple fact that why the First Step was extremely important about knowing what you owe and to whom.
So, list down and paying off all of your debts starting from the smallest amount and move towards the largest one.
Breathe, donâ€™t panic and take one step at a time, Iâ€™m here to help and get you out of your debt. (Trust me, Iâ€™ve been there and know exactly how it feels.)
First of all, Congratulations to you on making up to this point, following the previously mentioned ones and now planning to move ahead.
Even after having your debts in one hand you need to understand that it is extremely important for you to have some cash as an emergency fund.
Be it for a medical requirement, a broken tap or a flat tire. Understand that Emergency in itself means an unexpected, unannounced event of your life which I want to make sure that you deal with without any difficulty.
1. Have a Piggy Bank or Penny Jar. I know this is a traditional method but it still works. Keep on filling up your money jar with all the extra change which is lying around. You can also make a habit of filling a few dollar bills daily in it.
2. Stash away your Incentive, the bonuses that you get is the best source of creating an emergency fund because it is that extra income that you can put away easily without affecting your monthly expenses.
This might be a bit hard as youâ€™ve to make a choice between paying away your debt first or saving first. If this is the case with you as well then see if the debt that you have needs to be paid on an immediate basis or can it be postponed.
3. Saving first is advised ALWAYS, but NEVER put your money in a cereal box or hoard it under your mattress. Instead, open up a Savings account which will help you in Making some Money out of Your own cash.
These Online Savings Accounts are offering great returns.
4. Borrow from Your Parents, if your parents have a sound financial condition then there is no harm in borrowing from them.
How to Get Out of Debt in a Year?! Well now you already know the answer to this question but before signing off hereâ€™s a piece of advice.
Plan a 50/30/20 Rule:
Keep 50% of your Income for Essential expenses (Basic Monthly Requirements)
Keep 30% of your Income for your Savings and Debt Pay off.
Keep 20% of your Income for Wants and Emergency funds.
Finally, youâ€™re good to go.
I understand that getting out of debt isnâ€™t easy, but you can do it â€” and the faster you can do it, the better off you are.
Implement these debt reduction strategies, and look forward to a debt-free life.