Debt is so easy to get into and so very difficult to get out of. Prevention is always better than cure but the reality is that we get enticed into debt over time and soon find ourselves in it way too deep. The cost of debt climbs quickly and robs us of the potential to create wealth.
Institutions make their money by lending money to you at a rate over the time.
You can benefit by reversing the formula.
Interest + time = profit
You cannot reduce the interest rate but can reduce the time = less profit for institution
Less interest for institution means more savings for you
More savings for you compounded over time = more wealth for you
Here are 3 steps to getting ahead of your debt in 2016.
A debt trap can be likened to trying to fill up a bath with the tap on but leaving the plug out.
Step one
Put the plug in by making a conscious decision to get out of debt. The culprits need to be identified and cannot be allowed to increase anymore.
Credit cards, overdraft, personal loans, store accounts, outstanding taxes. All have to stop.
Step two
Open up the tap with your disposable income. This is the money that is left over after your cost of living during the month. You will have to draw up a budget on a sheet of paper detailing your expenses throughout the month. Focusing on living expenses, split them into ‘nice to haves’ and ‘must haves’. This is the hard work as you have to be brutally honest with yourself in identifying what you need and what you can do without.
Step three
Keep a close eye on the water level. Divert the new found savings back into paying off your debts. Targeting the highest interest bearing ones first and then working through the next. Patiently keeping your living expenses well under control. A new year brings on a wave of price hikes. So your cost of living will is going to increase anyway. Expect 2016 to be really tough. The cost of debt will probably increase as interest rates are on the rise. Debt is the enemy so you need will have to squeeze those living expenses even more now than ever before.
Reducing debt saves you fortunes and only saving for yourself instead of paying the bank will put you on the road to financial freedom.