Getting rid of debt is a dream for many. But doing it takes hard work. It is also important to recognise that debt just doesn’t vanish; it gets paid off.
The cost of getting rid of debt is the big differentiating factor, and it is what makes it easier to pay it off or not. That is why when trying to eliminate debt, you must consider various methods and know the cost of each.
And similar to losing weight, when you get rid of debt, you want to keep it off.
Falling into the same spiral of accumulating new debt with fewer resources to deal with it can become a vicious cycle. To successfully get rid of debt, consider these points:
■ Causes of debt
If the reason for a growing debt is the deficit between your income and expenses, address this shortfall before you even consolidate or settle the debts. You will need to make some difficult decisions to balance the budget and break even.
Increasing income may be harder than trimming expenses. So while taking your time to figure out new sources of income or a better-paying job, consider what you can cut immediately to reduce the deficit.
Other causes of debt might be special events or emergencies that incur expenses. These spending situations are easier to control, because with better financial planning, you can easily cut back on whatever is deemed optional. Emergencies — by definition — won’t occur regularly, so you could spread the cost over a period of time or even finance it at one go.
■ Long-term commitment
One reason to consolidate debt is to have a predictable, relatively low monthly payment that you can afford and pay off. But many find this new improved situation tempting enough to splurge again, especially as they see the huge balances on their credit cards are available again.
If you suspect that you would be tempted to overspend, cancel the credit cards. The first round of having high debt levels is often much easier to tackle than any subsequent round. The reason is that creditors are more likely to work out solutions with you, if you seem to be in trouble once.
But if you become a repeat offender, you might not get the same tolerance and openness. So, be prepared to commit in the long run to staying within your means and avoiding new debt.
■ Reversing the cycle
The goal should not end at getting rid of the debt. Aim for a healthier financial situation, with a safety net of savings that can help you avoid sizeable debts in case of an emergency. To be rid of this, work hard to first get rid of the debt that weighs you down, then improve the overall financial situation to have a balanced budget and sufficient savings.
Stick to good financial discipline. Over time, you will be able to reverse the cycle and begin to build savings rather than debts. That is easier said than done if you’re on a tight budget. But even so, this should be your motivation to either work hard to raise income or find out ways to cut expenses significantly.
The bottom-line: Living on debt should never be an option. Money that you borrow on credit cards or otherwise is expensive to pay back. So steer away from using credit except when it is absolutely necessary.
■ Build better financial aspirations
Have financial aspirations that don’t revolve around instant gratification. For example, plan for your children’s education or your retirement. You could even save for a major annual trip or a big purchase rather than continuously spending on purchases you don’t really need.
When you have an eye on a goal, it becomes easier to stick to the budget. Make sure not to add and switch plans and goals quickly. Or you might be tempted to overspend on more than can be deemed affordable.
Getting rid of debt
■ Find out what you have accumulated as debt
■ Commit to long-term financial discipline
■ Work on savings as a goal
■ Have long-term financial aspirations
(The writer, a former Gulf News Business Features Editor, is a Seattle-based editor.)
