Because you just need us to break down the long arduous path to get out of debt into easy actionable steps
We understand the hardship you’re going through. That’s why the team at Debitize came up with this – the ultimate, no-frills, super easy step-by-step guide you can follow to get out of debt. Ready? Let’s begin.
1. Know Your Real Disposable Income
i. Get your pay stubs.
ii. Examine your gross take-home income after all taxes and deductions.
iii. Get your monthly credit card statements.
iv. Go through them, highlight the absolute needs (mortgage payment, phone bill, food, etc) with a green highlighter, the wants (clothes shopping, snack and drinks purchases) with a yellow highlighter and one-off purchases (that new TV) with a pink highlighter.
v. Deduct your needs from the gross income and determine your real disposable income, keep this figure in mind.
2. Make a Budget
i. Based on your disposable income, think of how you want to allocate your budget towards paying off your debt, purchasing the ‘wants’ category items, investing and saving. The allocation depends on your actual debt, your personal saving goals etc.
3. Make your minimum payments
i. If you have multiple credit cards with balances, make at least the minimum payment for each of your credit card statements to avoid late fees and a potential ding to your credit score.
4. Pay off your high interest debt first
i. If you have multiple credit cards, student loans or interest-bearing borrowings, compile them into a list and rank them by the interest rate in descending order.
ii. You should aim to pay off the highest interest debts first as these are the most expensive to maintain in the long run. Refinance your home or student loan if you think you can get a better rate.
iii. Examine your credit cards’ APR and get rid of the one with the highest interest rates . Shift your balances into the credit card with the lowest rate, or find a new card with 0% APR for new balance transfers. Those small interest payments accumulate quicker than you think.
5. Automate your payments if you haven’t already
i. If you’re in debt, missing a payment is the worst thing you could do to yourself. Automate at least your minimum payments through the bank or issuer.
ii. Even better, Debitize your credit card. Debitize automates daily payments to cover your credit card spending and then pays your bill automatically, so you never miss a payment. Best of all, it’s completely free.
6. Put your savings to use
i. If you’re maintaining a healthy savings account while at the same time having some kind of debt – consider using some of your savings to pay down your debt! Seriously. Saving for rainy days is great and it feels nice to have the nest egg. But think of it this way – you’re paying way more in interest on the credit card than you are earning in your savings account – and if you need the funds for an emergency down the road, you can always charge the expenses back to your credit card. The interest you’ll save will help you rebuild your savings even faster.
7. Talk to your creditors about your interest rates
i. Call up your creditors. Tell them about your financial situation and your difficulty in paying your balances. Your creditors are in a position to lower your interest rate. If you catch them in a good mood, they might lower your interest by a significant amount. They’d rather have you pay less than to default on your payment.
Done? Good job! Maintain these small habits over the next few months, and years, and you’ll be on track to attaining financial freedom.