How to Stop Living on Borrowed Money

A great percentage of people worldwide is in debt. More so in developed countries, as real estate prices are through the roof, as well as the general cost of living.

The temptation is also what makes people debt-ridden, as consumer societies offer a lot and creditors are going out of their way to convenience their customers.

After some time of living like this and enjoying commodities, people find themselves stuck in the mud and using everything they earn to pay their debt. Luckily, with the right set of mind and the right tools, anyone can get out of debt and stop borrowing money.

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Make up your mind

The determination is the only thing that will help you get out of debt and away from it forever. Once you decide to tackle your financial issues you need to stick firmly to it. I know, as well as you do, that you could go on like this forever and never miss any payments and keep your head above the water, but this would only be an illusion of a good life. The debts will rob you of your chances to ever save up for something you truly enjoy or even becoming well off. It is crucial to turn your defense into offense as soon as possible.

Make a plan

Start by creating an honest budget, that is, list your sources of income against all of your liabilities. Now is the right time to look at your credit card statements and find out the exact interest rates and amounts due on all of your loans. An important thing here is to make a change in your living expenses. Cut them down as much as you can. Deprive yourself of all treats such as shopping dates and eating out. If you find this extremely hard, set a goal of treating yourself with a night out, or whatever it is that makes you happy, only once a month and set a budget for it. You do not have to put your social life on a pause, focus on staying in, have your friends over for a dinner, rather than meeting them in a restaurant.

Prioritize your debts

You have already listed all of your debts. Your next task is to align them by priority. The criteria you are looking at is the amount you owe, the consequences you will be facing and the interest rates. You should be tackling the smallest debts first. If you have any doubts, see which one has the highest interest rate and start from there. Make sure that in the meantime, you have enough funds to cover the minimum payments on the rest of your debts as some of them could lead to a foreclosure and you could be left homeless, while others could put you in jail.

Attack the interest rates

The interest rates are the silent killer of your budget. They are the ones who keep you on the perceived Perpetuum mobile seesaw of your debt. They, combined with the minimum payments, make it seem like you are never getting out of debt. Once you make the minimum payment, the interest rate eats up at least half of it and it appears like there is no movement at all. Start by negotiating your interest rates wherever you can. It does not hurt to talk to your creditors and renegotiate the terms and the percentage of interest rate. You can always explain that you can move your debt or refinance it with a less expensive loan. If this does not work, that last thing is exactly what you should do. Shop around for loans with lower interest rates which you can use to refinance the ones you already have. Get a credit card deal which will give you a year of 0% interest rate and use the funds to pay off a debt which could preferably be covered entirely by the card. You won’t believe how much a year without an interest rate could save you.

Avoid paying the minimum payments

Paying the minimum payments should only be used for the loans you haven’t gotten to as yet on your list, to keep you out of default. However, even with those ones, try to pay as much as you can in order to get them moving and decrease amounts lost on interest. This is why you should use all of the money you have managed to save by choosing a cheaper lifestyle or anything else you receive on the side, such as bonuses, inheritance, and compensation payouts etc. to make payments on your loans.

Sell your belongings

Now is the perfect time to declutter your home and your life. Make a selection and sell out any belongings you no longer need or use. A lot of people have jewelry they have collected throughout the years that they never wear. Sell it and replace it with a piece or an accessory you will actually use to preserve the emotional value and use the rest of money to cover your loans.

Be persistent

Kudos to you for getting out of debt, but this is not the finishing line. Being debt-free is not the same as staying debt-free. You can revise your budget and use the money left over from the long-gone liabilities to start saving. First of all, you will need an emergency fund. This is what you will tap into in case something comes up. You used to use your credit cards for this, but now you are your own creditor. Try making it a rule to replace all the money you have taken out of your emergency fund, like a loan but with no interest rate whatsoever. You can choose the number and the purpose of savings accounts you will have. One good thing is having an automatic savings account, it will automatically get the money out of your bank account and out of your sight.

Find other sources of income

Include this step anywhere in the process, find other sources of income which can help you through your mission. You can find small projects to do online on platforms such as Upwork. You can invest a part of your savings in peer to peer lending, or purchase stocks. Rent out a room to a student or any unused space as storage units. There are plenty of ways you can earn extra income and it might not be much, but it will add up and it will help you on your mission.
This will not be easy, but no task in life is. Be prepared to make a lot of sacrifices but once you have cleared your way, you will never have to sacrifice anything again and you will be able to enjoy your freedom.

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