About 14% of households have more debt liabilities than assets. Yet, only 1% of households declare bankruptcy every year.
That’s because bankruptcy carries long-term consequences. It stays on your credit report for 10 years. It impacts your ability to get loans and credit cards in the future.
Since bankruptcy is a legal proceeding, your bankruptcy stays in the public record for 10 years, too. The social stigma around bankruptcy is harsh, too.
Your best bet is to pay off your debts. Even if you have an insurmountable level of debt, you want to avoid bankruptcy.
Read on to learn how you can become debt free and lower your financial stress.
1. Look at Your Financial Picture
This isn’t the time to bury your head in the sand. This is the time to come face-to-face with your debts. The more you know about your debts, the easier it becomes to handle them.
Make a spreadsheet that lists all of your debt. List the type of debt, the minimum monthly payment, total balance, and interest rate.
Then look at your budget and see how much you pay towards debt each month.
2. Choose a Debt Payment Strategy
There are several financial strategies to become debt free. Which one you choose depends on the type of debt, the amount you owe, and the interest rate.
For example, you can use the snowball strategy, where you pay the debt with the smallest balance off first. You pay the minimum payment on all other debts while paying more on the small balance first.
Once that’s paid off, you move to the next smallest balance.
Another strategy has you tackle the debt with the highest interest rate first. This is likely to mean your credit cards.
3. Earn Extra Income
What would an extra $100 or $200 towards your debt do for you? It would help you become debt free much faster.
It can be hard enough to earn extra cash if you already have a full-time job. However, if you shoot for a couple of hundred dollars a month, you can still have the energy to do it all.
You can pick up a freelance job a month for extra income. You can spend a few hours a week coaching or training others.
There are countless things you can do to earn extra cash. Get creative and follow your passion.
4. Set Goals for Paying Off Debts
The people who are the most successful at paying off debts have something in common. They set goals and have the incredible discipline to see them through.
A few goals never hurt, and they’ll help you pay off your debts faster. Set goals that are realistic. You can use a debt calculator to figure out how long it takes to pay off your debt.
Start to Pay Off Your Debts Now
Being in debt is incredibly stressful. There are ways to pay off your debts and avoid bankruptcy. You need to know how much you owe, pick a debt strategy, and set goals.
Head over to the Finance section of this site for more financial tips.