Get out of debt: The best strategy for long-term financial well-being
Smart consumers know that the best way to weather the financial turmoil is to pay bills on time and eliminate debt. By doing so, you will make sure you are on solid financial ground. There is no magic, quick-fix way out of debt. It is always easier to get into debt than it is to get out of it. The process requires commitment and discipline on your part.
1 Understand and control the emotions that caused you to get into debt. Overspending is almost always emotionally driven - a sense of entitlement to a certain lifestyle, the desire for status symbols (expensive car, big house, lavish apartment), the desire to keep up with one's peers, or the need to feel better about oneself. Financial planning and advice will not help unless you understand your emotional weakness related to money and learn to control them.
2 Keep a spending diary. In order to figure out what is causing you to overspend, keep a daily spending diary for at least one month. Carry the diary with you everywhere and fill it in immediately after you spend any amount of money, no matter how small the amount. By the end of this one-month exercise, you will have a record of things on which you routinely waste money, and perhaps, most important, examples of those moments of emotion-driven spending.
3 Set a budget to determine how much you realistically can allocate to pay off your debts. This will help you determine how much money you can commit to debt repayments each month.
4 Prioritise your debt payments. Make a list of debts with the name of the creditor, total amount owed, interest rate and minimum monthly payment. Then focus first on the debt with the highest interest rate.
5 Call and ask creditors to lower the interest rate on outstanding balances. Even if your creditor says no at first, try negotiating to have a reduction for three or six months as a trial period during which time you promise to make all of your payments on time.