Did you come into 2019 with debt from 2018? One of your resolutions while starting this year may have been to clear that debt before it ends. However, what you need to know is that to clear debt successfully, planning is vital. You may have heard the popular saying “failing to plan is like planning to fail,” and it also applies to debt repayment. With a well-established plan, you’ll clear off the debt easily and comfortably.
While planning is essential to clearing debts, some people face problems when it comes to managing their finances. Especially during these tough economic times where many people are living day-by-day and month-on-month, you may find that your debt has even increased at the end of the year, even if you’ve been making the minimum repayments. If you’re one of these people, we’re going to look at 5 handy tips to help you reduce your debt successfully.
Set a fixed monthly repayment amount
If you’re serious about clearing your debt, the first and most important tip is making it a priority. Rather than dividing your salary among all the other bills and using the remaining amount for your debt repayment, set aside money to pay off your debt immediately you get your salary. This way, you’ll be disciplined and won’t be tempted to spend money on other things before repaying your debt. If you feel your salary isn’t enough to cater for all these needs, evaluate your monthly budget. Sit down with a pen and paper, and note down how you’ve been spending money for the last 2 or 3 months on both fixed and variable expenses.
After this evaluation, you can then work out a suitable budget. For instance, if you earn $2,500 every month and expenses add up to $1,800 per month, setting aside $500 every month for debt repayment can be a wise decision.
Any other type of credit card is a no-no
One thing that can turn your debt situation from bad to worse is a credit card. It gives you a false sense of security. It makes you think that if the money you’ve deposited in your credit card account runs out, you can still swipe before you receive your salary. However, what many people don’t realise is that this is still credit, and it will add to the heavy debt you’re trying to clear. If all these debts pile up to huge amounts, it will become a heavy burden, and you’ll have a difficult time clearing any of them. Therefore, stay away from other forms of credit until you clear your main debt.
Debt consolidation is an excellent solution
If you have taken several forms of credit, keeping track of the money you owe can be challenging. In such a case, consolidating all your debts into one is a great solution. Even though it may seem counter-productive, let’s take at an example to help you understand better.
John has 3 lines of credit:
- Credit card 1 with $4,000 at 25% interest p.a
- Credit card 2 with $3,000 at 25% p.a
- A personal loan with $6,000 at 10% p.a
At these rates, the interest alone for these lines of credit will be $1,000+$750+$600 = $2350, without considering compounding effects. But if he gets a consolidation loan, it can lower the interest amount he’ll pay. Let’s say John takes a consolidation loan for the 3 debts at an interest of 12% p.a. The interest will now be $13,000×12% = $1560. By taking a consolidation loan, he can save $790 from his original interest payments.
Get a second job
If your current monthly income isn’t enough to pay both your bills and your debt, consider getting a second job. In this modern age, it is not hard to get a part-time hustle to supplement your monthly salary if you have extra time to spare. One way is getting an online job and working from home. Another way is taking advantage of the time you’re not at work to drive Grab. You can use these as short-term solutions until you repay off your debt.
Do you have a hobby that you can monetise? This is another fantastic solution as well. Many people have turned their passions into side businesses – baking, painting, building toys, etc. The best thing about these side businesses is that you don’t need a lot of money to start or a physical store. You can use word of mouth for marketing your items and selling them from home. And if you have an extra room, you can consider renting out temporarily, get some rental income, and use that money as part of your debt repayment.
Sell items you rarely or don’t use
We all have items in our homes that we rarely or don’t use. You can sell these things off and make money to clear off your remaining debt amount. For instance, you may have bought a new dining table, and your old one may be lying in your garage. Also, you may have clothes from two years back that you don’t wear. A platform like Carousell can come in handy to list these items for sale and connect you with customers. Alternatively, you can hold a garage sale especially if you have lots of things to sell. These unwanted items, which may have been lying in your garage, can work wonders to raise an amount you never imagined.
Bonus tip: Reduce unnecessary spending. If you have a personal loan and paying it has become a problem, try cutting back on unnecessary expenses. Sit and write down things you can do without. TV programmes, eating out, and clubbing are some of the things that should minimise. You can then divert these savings towards clear your debt.
These are some of the best tips to help you reduce your debt effectively. Don’t ignore your debt problem, hoping it will disappear. It may seem unmanageable, but if you come up with a well-established plan and have a focused attitude, you’ll get rid of it and regain control of your financial situation.