Getting out of debt could be stressful, especially with a low income. We often struggle with debts and cannot get out of them due to limited income. However, this can be solved by laying a good strategy that focuses on maximizing the available income to settle all debts while still paying bills and day-to-day expenses. Three basic steps will go a long way in solving this menace. The first step is preparing a budget, clearly defining finances available in all accounts, and assigning expenses. The last step is using the remaining amount to pay debts using the most appropriate payment method.
During budget preparation, you should define all expenses and organize them according to priority. You need to approximate your expenses and know how much you need within the period you prepare the budget for. An optimum budget should prioritize the most necessary expenses while minimizing the unnecessary expenses and eliminating them where possible. On completing the budget, you are well informed on the amount of money you need to spend and clear to move on.
The second step is analyzing all your accounts to know the amount of money you have. After knowing the amount of money you have in your accounts, you will need to allocate the money to the prepared budget to cater to your expenses. Having prepared an optimum budget, you will be able to have a bigger surplus in your accounts. The surplus obtained after assigning expenses will now be used to pay off debts.
The final step is paying off debts. With only one debt, paying more than the minimum amount required will be instrumental in clearing the debt faster. However, you will need to use different strategies if you have multiple of them. If the debts have insignificant disparity in interest rates, you should use the snowball method, which requires you to pay the smallest debts as fast as possible. On completion, use the money to repay the next small debt on the list. You should use the avalanche method in such a case where there is a significant disparity in interest rates. This method requires you to service the most expensive debts first. Doing this reduces the total amount of money you have to pay. After completing the most expensive debt, you roll into the next most expensive one. The last debt to be cleared should be the lowest interest rate.
Getting out of debt is a process that requires a good strategy and excellent financial discipline. This strategy is reliable and efficient, especially when used consistently.
