Cutting Out Debt Effectively

Monthly bills, overhead and expenses can definitely be overwhelming. Having debts to pay only adds to the stresses of the daily grind and makes everything seem bleak and inescapable. How does the idea of being debt-free sound to you?

Taking control is the key to cutting out debt and living in financial freedom. Here are some tips to help you get started:

Know Where Your Money Goes

Realizing where your monthly income is going is always the first step in eliminating debt.

Take pen and paper (or a note-taking app) and write down how much you're taking home from all your income sources. How much are you getting for investments, interests on savings, pensions and salary? Put them all in a single column. Then, write down all your monthly expenses, such as energy bills, rent, food, gas, internet or cable services in a separate column. Compare the two columns and take note of the remaining amount. This will be used to pay off your debt.

Gather All Your Statements

You should have an idea of how much your overall debt figure is and how it's spread out.

Collect all the bank statements, store cards, loans and credit card bills and take a look at them one by one. Take note of how much you owe per balance and how much they cost per month. Moreover, write down their respective interest rates and the total debt amount.

Budget and Cut Your Monthly Spending

Your debt-to-income ratio will become crystal clear once you put the two side by side. If it's not looking good, then it may be time to set a budget and stick to it as you pay off your debt.

Return to your monthly expense column and see if there's anything you can cut out. You can probably live with a service downgrade for your cellphone, TV or cable service, or maybe make your clothing expenses every other month instead of each month Cut back on the ones you'll need least to free up more resources to pay off the debt balance sooner.

Prioritise Debts By Interest Rates

Anyone can start paying down their balance with the extra cash on hand, but smart people will know that some debt should be paid sooner than the others.

After you've written down each balance and the corresponding interest rate, order them according to priority. The ones that have the highest interest rates, final warnings and late fees should be first. Put all your extra income towards paying off the entire balance while making sure the others are minimally paid. This frees up cash to get other debt paid in what's called a "snowball effect".

Get Help With Your Debt

Sometimes it's better to get professional help, such as asking a debt adviser to look at your finances and come up with a plan to cut out debt entirely. If you’re in Scotland, you could go down the route of a trust deed. A Trust Deed is an agreement between the debtor and the lender on how much the debtor can pay off realistically each month. It can prove to be the help one needs to start heading in the right direction without feeling overwhelmed. As long as the terms are met then the lender may be able to write off the rest of the balance.

Live Within Your Means

As you draw up a plan to pay off your debt, it's of absolute importance that you don't add to the balance. Have a working budget drawn up so you will know how much extra cash you have after paying the monthly dues.

Stick to buying only the essentials such as food, clothing and rent and keep excessive spending at bay by hiding your credit cards. Impulse purchases can be defeated by asking yourself, "do I really need this?". Furthermore, you can move into a smaller flat or going on commute as you pay your debt one by one.

Earn Extra Money On The Side

Start by selling the stuff you don't need or are stuck inside your attic, garage or storage space.

Round up second-hand or unused clothes, old electronics, gadgets and furniture. Then, find each of these items a loving home by listing them for sale on the internet. There are several popular platforms such as eBay, Amazon and Facebook where individuals can sell their items for money. Your house gets neater, less cluttered and you'll have more cash for adding to the budget or even paying down some of the debt balances.

Taking on a second or maybe a part-time job is not unusual and can work as supplemental income for you or your family. Consider doing odd jobs or maybe freelancing on the web for one-time tasks or projects.

The feeling of being debt-free is one unlike any other, but the journey won't start without a single step. Take action and be responsible for the balances you've accrued and work out a way to pay them all of without sacrificing necessities, and you'll be well on your way to a debt- and worry-free life!