The time for truth has come: yes, your financial life is messy and your debts are out of control. Admitting is the first step to taking a solution. That said, it’s time to get your hands dirty and start the journey towards a healthy financial life.
Want to get out of debt? Follow the step by step:
1. How to get out of debt? – Find out the total amount due
Contact all your creditors to find out the exact amount of your accumulated debts. If in doubt, a good alternative is to use credit protection agencies, such as the Credit Protection Service (SPC) or Perasa, to find out which companies have requested to include your name in the debtor register.
Also raise other debts, such as condominium and arrears, and borrowed amounts from friends and relatives. The time to reverse this situation is now. Do not leave anything out of this survey.
2. How to get out of debt? – Map your monthly budget
Once you have calculated the exact amount of all your debts you need to map all your monthly expenses to know how much money you will have available to renegotiate debt installments without compromising your essential expenses (food, health and transportation).
One tool that can help with this process is GuiaBayment, which automatically pulls and categorizes all your debit and credit card spend. In addition, Pocket Guide offers charts that will help you understand where each dollar you spent in the month went. Thus, it is much easier to identify where it is possible to spend less to finally get out of debt.
3. Getting Out of Debt – Rearrange Your Monthly Expenses
Once you have mapped all your monthly spending, it’s time to create spending goals to rearrange your expenses. One of the most effective ways to do this is by applying the 50-15-35 rule. It works like this:
- 50% of monthly income is spent on essential expenses such as house bills (electricity, gas, telephone), transportation, food, education and health;
- 15% for financial priorities: In this case, your top financial priority right now is to pay off your debts. Next, the next steps, in order of priority, should be: create an emergency reserve, make a pension plan, and invest in the long run.
- The remaining 35% should be spent on maintaining your lifestyle, which covers all your daily activities that make your life lighter, such as movies, gym and dining out. Remember that this is the category that has the largest spending cut if you need to set aside more than 15% of your income to renegotiate your debt.
4. How to get out of debt? – Renegotiate your debts
Now that you have mapped your budget and reduced spending, you can now identify how much of your income can go to paying off debts. So instead of accepting the first offer from creditors, make a counter offer: for cash payment, negotiate a good interest discount and for term payment, propose installments that fit your budget.
If there is no agreement with the financial institution, a good option is to borrow money from a friend or family member. This way, you can repay the discounted cash debt and refinance it at lower interest rates with those closest to you.
5. How to get out of debt? – Build an emergency reserve
With your debts under control, it is time to start saving part of your income to build an emergency reserve. This mattress is critical to preventing us from life’s hardships, so we don’t have to get overdraft every time we get caught up in a fine, unexpected medical expense or even those months when we spend a little extra on the credit card.