Getting Rid Of Debts

What really Debts Are?

Debts are the amount of money one party borrows from another. Debt is used by both companies and individuals as a means of making major transactions that, under normal circumstances, they could not afford. A loan contract provides permission to borrow money to the investing party on the condition that it is repaid back at a later date, usually with interest.

A Debt is a Debt there is nothing like Good Debt or Bad Debt, these are just terms coined by financial institutions. It’s always better to get rid of a Debt asap whether it’s Good or Bad.

Many people would advise you that investing your money in stocks, business is smarter, rather than paying off your debt and they call it Good Debt, Perhaps that is accurate if you are an experienced stock picker. Yet if you’ve never actually invested or new to the business you might end up with more debt, so avoid debt in all situations.

Debts exist in many shapes and sizes:

• Credit card debt
• A mortgage
• An auto loan
• A student loan
• Any loan from a bank
• A home loan
• A medical bill
• A legal bill
• Any money you owe to someone else (usually with interest)

If you have one or more of the above, you’re certainly not alone as these days most people take loans to buy a home, a car or for education, they use credit cards to pay monthly bills and overbuy luxury. Even if you have very little debt you only have to manage it, however, If you have just a little debt, you’ve got to keep your contributions up to make sure it’s not getting out of hand. On the other hand, when you have a huge amount of debt, you have to make more effort to pay off the debt when making payments on the loans that you are not paying at the moment. Follow the below steps to get rid of that huge amount as soon as possible:

Step 1: Know to whom & how much you Owe

Compile a list of all your debts, including the lender, overall debt size, monthly payment, and due date. To assess the debts on your list you can use your credit report. With all the debts in front of you, you’ll be able to see the bigger picture and stay mindful of your entire debt situation.

Don’t just make a list and forget about it. Refer to this checklist periodically, particularly when you are paying bills. If the total amount of your debt increases, refresh your list every few months.

Step 2: Strike out each debts one by one

There are two main types of debt payouts: snowball and avalanche. Snowball comes as you first pay off the smallest debt. Avalanche is when you pay off the debt with the highest rate of interest first.

You can prioritize your debt payoff list based on the above two strategies, it’s on you to decide which debt you want to pay off first and which strategy suits your budget, but it’s always smarter to pay off the one with the highest rate of interest first because if you see the amount of interest you are paying for them is huge, especially always get rid of any pending Credit Card Bill, Personal Loans and/or an Overdraft before paying off your Eduction or Home Loan. This will save you a ton of money.

In case you have any savings and return on that is less than the total amount you will pay for your debt it’s always advisable pay off your debts first rather than keeping that extra savings in bank

Step 3: Cash is Queen & King – Spend Less Save More

Your next step is to search for ways to free up some extra cash around your current lifestyle and living expenses.

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Warren Buffett purchased a five-bedroom house for $31,500 in 1958 and has never really moved out of it. Its net value? An outstanding 90.3 billion dollars. He can afford a better, costlier house. Yet his minimalism may very well be the secret of him being one of the wealthiest men in the world.

On the other hand, Kanye West isn’t shy to advertise his wealth. He resides in a house that is worth 20 million dollars. But at one stage he asked Mark Zuckerberg for a billion-dollar on Twitter as he was in 53 million dollars debt. The fact is, there are many rich people who don’t appear really rich. Zuckerberg basically carries the same ordinary denim and t-shirt each day.

Below are few steps to free up some cash:

• Eliminate Unnecessary Subscriptions
• Switch to Streaming TV from Cable operators
• Slash Your Cell Phone Bill
• Restructure Your Insurance if possible
• Shift your home loan to a lender with lower interest rates
• Sell out useless luxury and unused items
• Do not take club memberships or long subscriptions
• Cancel newspaper and magazine subscriptions
• Consider reducing/eliminating other regular paid services
• Cook (and pack) your own meals at home
• Reduce or eliminate eating out or getting take-out
• Buy generic when you can

Step 4: Make more money, create more income sources to overweight debts

 Well, most of us probably think that “My debt is so much more than my income, I can never pay it off forget about financial freedom ” and alas this is reality but if you are serious about financial security and independence, you have to sweat tears and blood to achieve the same. Perhaps the regular 9 to 6 job will not be going to cut it, you need to step it up and look outside of your current job for money.

Some experts advise having seven streams of income. If you have a 9 to 6 job, congratulations, you have one, only six more to go!

So you can look at your sources of income in two ways: active income: when you’re limited by the hours of the day if you trade in your time for money or passive income: when you don’t have a lot of time to devote on multiple things, you can focus on creating income streams with passive income where you do not devote your time every day on an earning activity.

Ashish Agrawal

Ashish is passionate & enthusiastic about coding and developing new skills. He has over a decade of experience in the Software & IT industry. He loves to code, design websites, and finding automated solutions to everything.  He loves writing on topics like investment, nutrition, leadership, etc.