Biggest worry for anyone is to get out our debt and reach financial stability. We do spend hours in maintaining our health, body and appearance but often miss the bus when the most basic entity responsible for all is concerned and that is our regular debt. On average, people do spend in thousands of dollars on clearing the accumulated debts through various sources like credit card, car loans, mortgage loan, house loan etc. If we go by the figures of 2015 American Household Credit Card Debt Study by Nerd Wallet, an average household credit card debt was nearly $ 15,762. If we take into account of the interest rate levied on credit card by various licensed money lender such as licensed money lender, it ranges from 15 percent to 25 percent which is huge and people are wasting their hard earned money as wholesome every year. Good financial planning tips to get rid of accumulated debts, could be of great help to every household needs in helping them with mental peace, better life and significant saving. Down below are the certain smart ways to get rid of your debts in an easy manner.
Make a Budget
Generally people tend to spend more out of their pocket falling into a recurring debt. Proper planning and expenditure based on it helps a lot in checking the occasional shooting in expenditure. It is here that a periodic budget plays a very important role where one is aware of the financial planning and movement. A well planned budget and strict adherence to it, allows a check on the expenses and wasted expenditure and most importantly limiting the expenditure into overshooting as a result of unnecessary lavish style. It gives a clear picture of the volume and timing of inflow and planned outflow.
When the debt has risen significantly, it is paramount to limit the expenses and for that a tight skin budget is crucial clearly mentioning the necessities and utilities and repayment on priority which will limit wasteful expenditure and channelize the flow into more constructive debt clearing. Not so urgent buying can be set aside till debt gets cleared. Identifying and highlighting the luxuries is equally important like going to barber on regular basis, spending too much on eatables, riding cars where plying on a bus is an option, shared transportation whenever possible etc. are some of the logical and crucial financial planning entity needs to ponder over and strict adherence to.
Do Not Use Credit Cards
Person who has healthy credit line and are good in their personal financial planning with strict adherence to the planned budget can opt for differential loan but when dept is significant, it is better to shed off the debt first then go for further credit. Besides, credit target setting is as an important aspect to be in line with. Credit lending and repayment go hands in hands as missing the deadline often adds additional hefty levy. As far as possible, stop carrying cash instead of credit card which will limit the tendency to overshoot unnecessary expenses. Again strictly following the budget is vital. By that purchasing will take place only when necessary cash is available and on surplus of cash in hand revisit your budget. It is very tempting to overspend with credit card in hand. General line is to have a great control on impulsive decision. Ensure that debt clearance planning are always at the back of your mind and are the repayments are timely paid off every period consistently. Every licensed money lender tends to tempt you more and more with offers and discounts to go for credit use. This is where overshooting of expenses by consumer takes place. Avoid the temptation.
As Far As possible Repay Your Debt More Than You Planned
Licensed money lender do not earn from those who take credit and pay the licensed money lender back in time but from those who fail to repay in time coughing huge interest on them unnecessarily. Credit lending companies are well aware of the facts that people always opt for minimum repayment and fall in the interest trap and debt. This is very stiff asking on every wallet. To better understand this policy let’s take an example that there is a debt of $ 5,000 in credit card at 18% interest and minimum repayment of $ 150 is made which roughly 3 percent of the total debt. It would take nearly 4 years to clear off the debt and in process ending up with paying a huge sum of $ 2000 more simply as interest. Best practice is to pay the entire bill every month to stay away from such unnecessary and huge burden.Dept often pile up due to inability to repay and it is then strictly advisable to pay as much as possible above the minimum repayment amount regularly to minimize further debt clearing time.
Skipping of any repayment schedule should be avoided and endured that all planned repayments are in time and in line with the planning. It is better to put some scheduler or reminder or auto payment to ensure timely repayment. Consistency in repayment will reduce the debt burden efficiently. In case of missing the repayment schedule, it is always better to be late than never. This is far better than total failure in repayment. In case of any surplus in cash in hand, immediate clearing of debts should be prioritized.
Plan to Clear the Big Debt on Top Priority First
When burdened with a lot of credit cards debt, it is always advisable to clear the larger debt first. It is always confusing to plan for debt clearing when burdened with multiple credit card debts. There are various rules of thumb to start clearing the debt but it is always better to follow certain methods to have a better planning, budgeting and repayment. Certain popular methodologies are as:
The Snowball Method
It is the method where repayment of cards is done with smaller debt and clearing them off as soon as possible. Do not bother to get behind in the case of repayment of other card debts even if minimum amount is being paid for the other cards with bigger debt. This is clear off the dues sooner. As soon as the smallest one gets cleared off its debt, revisit this process and follow the same procedure until all debts are cleared off.
The Stacking Method
This is the method to begin repayment of debt for the cards with highest interest rate so that recurring debt pile up reduces it to some extent. It is advisable to repay the debt of the credit card with the highest interest rate first even if only minimum repayment for other credit card debts are possible and if the debt of this card get cleared then revisit this method for other debts repayment.
Renegotiate the Interest Rates
As far as possible try to renegotiate for the interest rate of all debts which will give much saving on debt clearing and further repayment sooner. A small interest rate drop will lead to significant reduction in repayment amount. Considering the case that an interest rate drops from 7 % to 5 % on a $ 150,000 mortgage, it will save a monthly amount of $ 192 which can be used very significantly for repayment of other debts.
Generally companies do not negotiate on interest rate of repayment but on special cases they like financial hardships, family tragedy, job loss, serious illness, Act of God etc., they do negotiate which can do wonder in repayment planning of all debts. There are various occasional schemes available or announced occasionally which will further give a shy of relief in repayment planning. All these need to be observed clearly and all such opportunities need to be incorporated in financial planning. In case of regular repayment and certain amount of repayment, various programs are there to get benefit from like Home Affordable Modification Program.
Refinance Mortgage Rates
It is one of the better option which does not do any good in getting out of debt but it restructure the loan into lower interest rate which has a huge impact on lowering monthly installment costs and closing costs. It should be taken care of the facts that closing cost is much expensive in some cases than actual saving which eventually increase the overall burden and hence it should be worked out judiciously before going ahead. Comparing for actual saving with restructuring in lower interest rate before hand is always advisable as then the one with bigger saving can be opted for.
Start saving as much as possible as once all debts are paid off to stay away from further debt and have a peaceful life. Extra amount in pocket is always better than spending unnecessarily. It is always good to plan in advance and save for bigger spending in future. As far as possible, it is better to use planned saving for larger purchases than purchase through credit cards.