It’s easy for debts to build up, leaving you feeling drained and stressed out. If you’re keen to reduce your debts and achieve financial freedom, what you need is a plan.
1 . A detailed budget
The first step to getting out of debt is to create a detailed budget. Your budget should include a clear breakdown of all your incomings and outgoings. It’s helpful to put all of your expenses into different categories. A budget will help you to see where you are spending the most money and see how much you could stand to save.
To create a budget that works for you try using a software tool. The leading software tools for budgeting include Mint, Every Dollar and Honey Due.
- Improve your earning potential
Budgeting is all well and good, but you can only stretch your earnings so far. For some people, getting out of debt means improving their earning potential. There are many ways you might pursue a higher income. You might go for a promotion within your company, or start up a side hustle project. Alternatively, you could look into passive income opportunities. A few passive income options include dropshipping, airbnb hosting or affiliate marketing.
- Tried & tested debt strategies
Debt reduction often starts with finding a strategy that works for you. Here are some of the most popular debt reduction strategies, recommended by experts:
The Debt Snowball Method:
According to Investopedia, ‘The debt snowball is a method of debt repayment in which a person lists all of their debts from smallest to largest (not including the mortgage), then devotes extra money each month to paying off the smallest debt first, while making only minimum monthly payments on the other debts.’
The Debt Avalanche Method: A slightly different approach to debt reduction, first you make the minimum payments, and then you allocate the left over funds to whichever debt has the highest interest rate. Once you’ve paid off this debt, you move onto the debt which has the second highest rate, and so on. (Investopedia, 2021).
- Negotiate on your interest rates
If you need to reduce your debts it’s well worth contacting your creditors, and attempting to negotiate a reduced interest rate. Many creditors will lower your interest rate, based on your account and payment history. Perhaps you have a great relationship with your creditors? If so it will be easier to negotiate for a lower rate. Sometimes with a little negotiation it’s possible to lower your debts.
- Keep on top of medical debt
Research from the American Journal Of Public Health discovered that, ‘that 66.5 percent of all bankruptcies filed by Americans were tied to medical issues (due to high costs or time out of work),’ (MakeIt, 2019). To help you to manage your medical bills here are a few steps that you can take:
- If you are not able to pay a bill, ensure that you discuss this with your insurance company immediately. See if you can set up a payment plan or negotiate a reduced price.
- Check if you are eligible for the Medicaid scheme, the program provides inexpensive or free health care for people who need it.
Unfortunately, many individuals in the USA are a victim of medical negligence, worsening existing health conditions, and leaving people in debt. If you’ve experienced medical malpractice, you’ll need the support of medical malpractice attorneys.