Unexpected expenses, impulse purchases and lack of spending planning. This tripod lists some of the main threats to your budget. When expenses get out of control, it is not uncommon for the chosen outlet to take out a loan. But when not even that resolves and we lose control, the question arises.
How to get out of debt once and for all?
1. Know how much you owe:
To attack a problem, you need to know its real dimension. List all your doubts, without exception. Contact each of the creditors and find out the value for each of them to be paid off.
2. Review your monthly budget:
I need to nip it in the bud. There is no point in taking loans to pay off accumulated debts while you are still creating new debts every month. Map all your spending and revenue (with the help of a spending spreadsheet or the Bill Guide, a financial control tool that automatically pulls your bank movements).
Create spending goals
Knowing exactly how much you spend on each of your expenses makes it easier to know where you need to work hard. Create spending goals by following the 50-15-35 rule:
50% of income for essential expenses: all those necessary for you to keep up with your daily living: living expenses, food, transportation, education and health are examples.
15% of income for financial priorities: Those who are in debt should have as a priority their debt settlement with this portion of income. When debts get in control, it is time to think about saving and investing.
TIP: If your debt installments exceed 15% of income, the criterion for balancing expenses is to review lifestyle spending first and then, if necessary, essential ones. In practice, this means that if your debts take 20% of your income, for example, lifestyle spending should account for 30%.
35% of income for lifestyle: all spending on hobbies and leisure: gym, beauty salon, courses, restaurants, parties, clothes shopping.
Renegotiate your debts:
Knowing how much you owe and stopping the bleeding from the budget that increased in increased accumulated debt every month will give you all the tools you need to come up with a new deal for your creditors. Do not accept the first proposal! If you pay cash, negotiate a good interest discount. If it is split, make sure the fittings fit into your monthly budget. The Central Bank Citizen Calculator can help.
It is important to commit to following what you have promised to both lenders and yourself. Control your monthly expenses so they no longer get out of line and pay the renegotiated installments on time. Thus, you will regain the trust of financial institutions for your future financial projects.