We have already talked before about the 11 simple things you can do every day to get out of debt and we even prepared an online course with a whole methodology that will help you get out of debt.
This time we want to talk about how the process of getting out of debt really is something quite structured. Maybe the order of the steps can change, but if you really want to get out of debt forever, you will have to go through these 6 steps even if you don’t want to.
1.- Accept your problem and understand your debts
No, it is not the first day of Alcoholics Anonymous, but acceptance is the first step of any problem. Once you accept your situation, you have to reflect on how you entered the pit of debts and you must also understand what your debts are like in great detail.
It’s a difficult step and it will take a while, but the sooner you do it, the better.
It’s a difficult step and it will take a while, but the sooner you do it, the better. To do your homework, start by listing the following:
How much do you owe?
Who or what banks?
What is the interest rate on each debt?
On which debts are you already paying interest?
What is the minimum monthly payment for each debt? (not all have a minimum payment)
What is the payment to avoid generating interest on each debt?
Where do you have accumulated surcharges?
2.- Learn to use the banks and the credit bureau
What surprises us the most at Querido Dinero is that personal finance classes have not yet been given since elementary school, middle school, or high school! Most of us normally enter our adult lives not knowing how the basics of healthy finances work. Therefore, you must learn about How the Credit Bureau works and in general understand banks and the financial world, we remind you of the Reasons to Learn About Credit. In fact, if you want to know all the tricks and formulas to improve your relationship with your finances, enter our online course to get out of debt.
3.- Take advantage of the financial system
Maybe you can think that life is not fair and that the system does not work. And maybe you are right. But in adulthood you must learn to play by the rules of the system to improve it and use it to your advantage.
But when you are an adult you must learn to play by the rules of the system to improve it and use it to your advantage.
Start by finding your preferred payment method, whether it’s cash, debit, or credit. Financial experts know how to use and take advantage of credit, but if you are in deep debt, you may have to start to get out of the hole using only cash and distribute your money in packets and per week. It is a typical and old-fashioned method, but when you limit your budget to the physical money you have for each week, you will start spending only on what is really necessary.
4.- Measure your expenses and your ability to pay
You can never get out of debt if you don’t know how to balance your income and your expenses. Get in the habit of measuring your expenses and keeping a record. You can also use other types of applications that monitor your bank account and help you have a clearer picture.
Remember that to know your ability to pay, you just have to be clear about a very simple formula: Ability to pay = Income – Fixed expenses (only exclusively necessary expenses count, not including tastes)
Ability to pay = Income – Fixed expenses (not including tastes)
Stop relying on your willpower and design infallible systems so you don’t overspend. Example: if you are going out to dinner at an expensive restaurant with your friends, better have dinner earlier at home and order something small just to hang out with others (make sure that the bill is not divided between everyone).
5.- Adopt better habits
Most likely, the debt problem happened due to having the wrong habits. Everything changes when instead of shopping, eating at restaurants and spending on entertainment, you start reading more about money, you focus on being a better person and a better professional, you learn to cook and enjoy what you have. By changing your habits you will see a change in your bank account. Remember that financial wealth is really a matter of mindset and how you spend your life on a daily basis.
Financial wealth really is a matter of mindset and how you spend your life on a daily basis.
You have to keep your mind in sync with your wallet. Decide on a target date for when you want to get out of debt and embrace a new lifestyle. Living with less money is not bad, you just have to use your time in a better way and with more creativity!
6.-Start paying ASAP
It’s that easy, dedicate as much as possible to paying your debts, as quickly as possible *.
Did you find 10 pesos? Dedicate them to paying your debts.
Did you walk a couple of blocks to avoid paying for parking? Dedicate that saving to pay off debts.
Did you cancel your gym membership that you never went to? Dedicate that saving to pay off debts.
- Note, don’t overpay either. If in a month you manage to collect more than you need so that they do not charge you interest, it is not necessary to pay extra. But if they are charging you interest, always pay as much as possible.
Before you start paying, consider whether it is convenient for you to consolidate your debt, we explain more in depth in our online course that will help you get out of debt.
When paying debts there are two ways: you can start paying those that generate the most interest, or those that are easier to eliminate. It all depends on your peace of mind.