Finance

Struggling to get out of debt? Try these 5 options before declaring bankruptcy

Getting out of debt can be a challenging and frustrating task, especially if you don’t have a solid plan in place. When they get themselves in a poor financial situation, many people consider declaring bankruptcy, but that is a difficult process that can have serious implications. Think of it as the ultimate last resort and, before giving up all you have and starting over, make sure there are no other options to consider.

People have different methods to deal with a poor financial situation, so there is no real magic recipe to get out of debt. However, there are many strategies that can help you manage your income a bit better and analyze your spending habits so that you know what you do wrong. These strategies can be combined to create a plan to become debt-free in less time than you thought.

The first step towards getting out of debt is to stop creating more debt. This will ensure your situation won’t actually get worse and give you enough time to start working on your strategy. Then, it’s time to develop a plan. The methods below are meant to give you some ideas on how you can cut down on expenses are work your way towards a debt-free future.

Learn to have a frugal lifestyle

Sometimes you just need to make peace with the fact that you can’t afford the lifestyle you used to have. It’s just a period that is going to pass, but it is an absolute must if you want to live a debt-free life.

Learning to live with the bare minimum is not as difficult as it may seem. It does not mean you have to give up on all the things you like. It just means you need to pay close attention to where your money goes.

Start by shopping smart and use coupons to save some money on your grocery shopping. Another method to reduce costs is to shop at consignment stores and thrift shops for things such as clothes, furniture, or household items.

Lots of people have started giving up on cable TV, as they can watch almost anything online. That’s around $100 that you can save each month, which can go towards paying off your debts.

Use the snowball method

Debt is a vicious circle. You borrow many to cover other expenses, and you keep doing so until you find out you maxed out all your options. Now you are left with more than one debt, and you don’t know where to start.

If you have multiple debts, the best way to tackle them without feeling overwhelmed is to try the debt snowball method. Start by listing all your debts down, from smallest to largest. Start by making larger payments on your smallest debt and continue making minimum payments on the others. Do so until the first debt is covered, then move on to the next one.

Apart from being a very effective method from a financial point of view, the snowball method is also very rewarding from a psychological perspective. Every time you cross one debt off of your list, you get a sense of accomplishment that will motivate you to move forward. 

Apply for a debt consolidation loan

A decade ago, debt consolidation loans were not as accessible as they are now. Thankfully, those in need of financial help now have more methods to regain their financial freedom. If you get to a point where you have too much debt and interest rates make you go crazy, a personal loan can be the best option to organize your debts better.

I know, taking out a loan to cover other loans sound like a bad idea, but that depends a lot on the type of situation you are in. If your credit score is good, you can even get a lower interest rate on your new loan and end up saving more money in the process.

A debt consolidation loan can also make you more financially organized, as it is a fixed monthly payment on a set term, so you won’t be tempted to make minimum payments and brush the debt under the rug until it can’t be avoided anymore.

Consider another source of income

If the money you earn now is not enough to pay your debts and meet minimum make ends meet, then it’s time to consider an additional source of income. The type of side gig or part-time job you choose is up to you, but here are some options:

Monetize your hobbies, especially if you are very good at what you do. This can include painting, crafting, tutoring, photography or music. By turning your hobbies into a source of income, you won’t be feeling as if you have one more tedious task to do, and you get to also have fun in the process.

If you don’t want to mix business and pleasure, then consider getting a part-time job to get some extra cash. If you have a driver’s license, you can become an Uber driver or deliver food in your spare time. Or maybe even getting a job as a bartender for a couple of evenings a week. Yes, it’s not ideal that you need to give up some of your free time for this, but it’s a sacrifice you need to make until you get back on your feet.

Make better use of found money

Throughout the year, you will likely come across some extra money, such as a raise, a bonus or some big tax refund. Each time it happens, direct this money towards paying off your debt. It may not sound like much at first, but each dollar counts and your main goal now is to get out of debt, so you need to work towards it.

This method works very well with the snowball method, as one chunk of “found money” can help you get rid of those small debts that have been bugging you for a while now.

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