How to Manage Loans so You Become Debt Free

Being in debt can be an issue if it’s causing you a massive headache. If you are feeling weighed down by the pressure of making payments each month, you want to become debt free as soon as possible.

The best way to do this is to manage your borrowing and to resist the temptation to use credit cards and other forms of credit. It can take effort and patience to do this but being dedicated helps you to become debt-free quicker. There are several steps that you need to take to manage your loans and other forms of credit.

Do not just pay the minimum

If you have taken out a loan, it can be tempting just to make the minimum payment each month. After all, there are so many other things for you to spend your money on. For instance, you may be tempted to buy designer jewelry or upgrade your TV.

However, paying the minimum amount means that you end up paying more interest in the long term. Generally, the quicker that you pay off debt, the less you end up paying overall. Of course, you need to make sure that your loans do not have any prepayment penalties attached to them.

In order to pay off debt as quickly as possible, you should aim to make more than the minimum payment each month. In fact, it’s a good idea to budget for paying extra.

Pay off smaller debt first

If you have any credit card debt, it usually makes sense to pay this off first. This means that extra money should be targeted at this debt as a priority.

It’s usually a good idea to start with the smaller debt and then move onto the next smallest once that is paid off. So, start with your smallest credit card debt and then pay off your cards and loans in order of size, going upwards.

As you start to pay off the smaller debts that you have, you should have more money to put towards the debts that are outstanding. This is called the snowball effect. The ultimate goal is to be debt-free, although you may have to be patient along the way. Clearing debt can take a significant amount of time.

Use a bare-bones budget

Anyone should have a budget in place. This should be a comprehensive list of income and expenditure. Most budgets include non-essential expenditure such as gym membership or dining out.

Using a bare bones budget is different and should only be used short term as a means of managing financial difficulties or getting out of debt quicker.

A bare bones budget only includes essential expenses such as mortgage payments and utility bills. Removing expenditure for non-essential items means that you have more money to put towards paying off your loans. This makes loan management easier and moves you closer to being free from debt.

Declutter your home

You may be wondering how decluttering your home can help with managing your loans. In fact, this can be helpful in a couple of ways.

One of the main benefits of decluttering your home, is that you can identify items that you no longer need. If these items are in good condition, you can sell them and use the extra cash to help pay off your debts. You can sell the items by holding a yard sale or use online sites such as eBay.

Another benefit is that you may come across items that you had forgotten about and that can be put to good use. This saves you from having to make expensive purchases and frees up more money to put towards loan repayments.

Change your lifestyle habits

Everyone has a certain lifestyle that they stick to. This can include expensive habits such as drinking, dining out or clothes shopping on a regular basis. Of course, these habits seem to make us happy. However, if expenditure like this is stopping you from managing your loans effectively, and becoming debt free, you need to ask yourself if it’s really worth it.

The answer is no. You should make a real effort to curb expensive habits so that you can put the money to better use.

For instance, if you find yourself buying items such as clothes or digital goods more often than is necessary, you should avoid stores and certain Internet sites. This may mean that you need to take a different route to work, so that you do not pass your favorite clothes store on the way. It may also mean that you have to be very strict with your Internet usage. Do not visit any sites where you will be tempted to make a purchase that you do not need.

You may not need to cut out all unnecessary expenditures. It may be sufficient to simply make changes that are significant enough to give you a decent amount of cash to put towards paying off your debt.

In summary

There is no doubt that managing your loans so that you can become debt free is not easy. You need to be dedicated and to have patience. However, having a life where you are not weighed down by debt makes everything worthwhile.

You may find that you have to live frugally for a while. This means that you may have to miss out on activities that you normally enjoy, and spending that you normally make. However, this is not a bad thing. Living this way helps to teach you the value of money. This means that even when your debt is paid, and you have more spare cash, you are still likely to be sensible.

This in turn means that you can build an emergency fund, so that you have money to use should any unforeseen circumstances arise. You can also save money for high-cost purchases, such as a cruise vacation. This saves you from having to use credit and helps you to remain debt-free.