Interested in starting a dialogue about personal finances and how best to educate ourselves to achieve financial independence.

How to Repay Debts and Become Wealthier

How to Repay Debts and Become Wealthier

It requires no mention that you cannot be wealthier with debts lingering around your financial life. So, first of all, you need to get rid of your annoying debts. Let’s see how you can deal with your debts and take the first step towards becoming wealthier.

Suitable ways to get out of debt

Here are a few possible debt relief options for you, out of which you can choose the most suitable one or a combination as per your financial situation. But, before everything, you have to calculate your debts properly.

Professional get out of debt options

You can opt for either debt consolidation or debt settlement to clear your debts with professional help.

Consolidating your multiple debts

If you’re facing problems to manage your multiple unsecured bills like credit cards, you can opt for credit card consolidation and enroll in a program offered by a consolidation company. A counselor, on behalf of the company, will analyze your financial situation and decide on a monthly payment which you have to pay to the company. In the meantime, the company will negotiate with your creditors to reduce the interest rates on your bills. Upon receiving your monthly payment, the company will distribute the amount amongst your creditors on your behalf, as per agreements. Thus, you’ll repay the multiple bills through single monthly payments.

Settling your outstanding balances

If your outstanding balances are out of your control, you can decide to settle debts. When you enroll in a settlement program, a counselor will negotiate with your creditors to reduce the payable amount. Also, the counselor will decide on a monthly payment as per your affordability. When you make the payment, it will get accumulated in a trust account. When enough fund is accumulated and a creditor agrees to reduce the payoff amount, the fund will be used to settle a debt. This way, your debts get settled one by one.

DIY debt relief options

You can save the money, which you have to pay as professional fees, by paying back dues on your own.

Opting for debt snowball method

In this method, you list your debts from lowest outstanding balances to the highest one. Then, make minimum payments on all accounts and pay a little extra towards the debt account with the lowest balance. Once you pay it off, apply the same technique towards the second lowest debt amount. Thus, you repay debts one by one. This method motivates you to pay till the last dime.

Paying back through debt avalanche

If you follow this method, instead of targeting the lowest balance debt, you pay extra towards the debt with the highest interest rate. Once you repay it totally, focus towards the next higher interest rate in your list. Though it may take a little longer to repay debt, this strategy helps to save money in the long run.

Along with paying back your unsecured bills like credit cards and personal loans, be current on your secured loans such as car loans and mortgage, if any.

What you need to do along with tackling your debts

Only dealing with debts won’t help you become wealthier. Yes, it’s a prerequisite, but you also have to manage your financial life in a better way.

Here’s how you can do it:

Plan a realistic budget

Planning a realistic budget is the first step to become wealthy. Unless you keep a track of your dollars, you won’t be able to save more. And, to become wealthy, you need to differentiate between your needs and wants and save a significant amount every month. It helps to spend money on the items that you value the most. I stress on the fact ‘realistic’ because you won’t be able to follow a budget if it’s too rigid.

Build an emergency fund to avoid debt

It can help you avoid falling into debt in the future. For example, you never know when a car may break down or there’s a financial emergency. If you have a fund dedicated for this, you can avoid charging your credit cards to meet the expenses. So, try to deposit about 10% of your monthly income towards building a hefty emergency fund.

Manage credit cards responsibly

Using credit cards is good as it can help you build your credit score. However, make it a point to repay the entire outstanding balance at the end of every billing cycle. So, charge your credit cards for an amount that you can comfortably pay off every month.

Invest and take advantage of compound interest

You need to invest to grow your money. The early you start investing in your retirement account, you can take more advantage of compound interest. However, while investing in other areas, make sure you take the help of an experienced person so that you get profitable returns in the future.

So, get out of debt, follow these strategies and watch your money grow with time.

About the author: This article is written by Catherine k. Burke. She loves to write about the financial problems of life. She motivates people to face difficult situations positively to get a better outcomes. She is associated with

Why Can't We Have Nice Things?

Why Can't We Have Nice Things?

Your Future Self Wants to Be Successful

Your Future Self Wants to Be Successful