Debt could be good because it affords you an opportunity to use tomorrow’s money to meet today’s needs. However, debt when not properly managed can cast very dark shadows over your finances and make it hard for you to become financially secure. This article provides five actionable steps that could help you improve your odds of getting out of debt faster and permanently.
Build an emergency savings fund
An emergency savings fund is money you set aside to tide you over during the proverbial rainy days. An emergency savings fund can help you cover unexpected expenses such as a broken faucet or a failed transmission among other things. Experts often advise saving up enough money to cover at least three months of living expenses.
However, it might be impossible for you to save up that much money if you already have a debt burden. Yet, you can still shoot for saving up $1000 in an emergency fund. You can reach the $1000 milestone by doing odd jobs, having a garage sale, or working overtime among others.
Get rid of all consumer debt
Consumer debt has a way of sucking people into the darkest recesses of a debt vortex because you’ll always have more reasons to take on more debt. Student loans, credit cards, gas cards, medical bills, and car loans are some of the consumer debt you should prune off your finances. If you are serious about getting out debt, you should start by paying off the smallest debt with the biggest interest payment. Move on the next debt with the second biggest interest payment work through the rest of your debt systematically.
Leverage the value of your home
A smart way to get rid of consumer debt (see above) is to leverage the value of your home. If you own a home, you’ll find it much easier to get out of limiting debt by taking out a home equity loan. A home equity loan gives you a huge emotional boost by lifting the psychological burden that comes with being saddled by too many loans to different creditors. Debt consolidation with a home equity loan means that you have only one creditor; hence, you’ll find it much easier to manage monthly payments and other parts of your finances.
Invest 15% of your income
One of the reasons you got into debt in the first place was that your expenses was more than your income; hence, you were forced to borrow money to make up the difference. You can improve the odds of your financial security by moving from being a spender to becoming an investor. Ideally, you should invest at least 15% of your income into investments that could bring in some extra money or investments that could provide you with income during retirement. Of course, you can start investing the little money you already have instead of waiting until you have a huge investment capital.
Build a real emergency saving fund
Getting out of debt is not an end in itself, being financially secure enough not to get back into avoidable debt is the real goal. You can take proactive steps to reduce your need for avoidable debt by building a real emergency savings fund. Building an emergency savings fund enough to cover at least three months (and up to six months) worth of your living expenses will put you in a strong position to weather most financial storms.