Stress resulting from debt takes a massive toll on people. It has been linked to loss of sleep, anger, self-doubt, changes in physical habits, panic attacks, severe anxiety, and depression. It’s been linked to a variety of physical ailments including migraines, heart attacks, ulcers, digestive issues, and other ailments. Here are some steps that can hopefully help you get out from under the unyielding thumb of debt.
Understand the type of debt
The type of debt you have determines how you get out of it. There are the 3 broad types of debt.
Circumstantial: this is debt that accumulates due to circumstances outside your control such as medical debt or debt because of unemployment and resultant loans.
Loans: this may not be negative and could include things like education, mortgage, and auto loans.
Spending: this refers to debt that’s accumulated because of thoughtless or reckless spending and high-interest credit card debt.
The following advice mostly applies to loans and spending because those are within your control, circumstantial debt is a different kettle of fish.
Establish how much you owe
Take stock of how much you owe and to whom. Note the different interest rates as well as the time within which you need to pay. This exercise clarifies the seriousness of the situation and puts your mind in debt repayment mode.
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Prioritize repayment
Now that you have all your debts and related details listed, it’s time to determine how you will repay them. Begin by determining how much you can afford to pay and the order in which you will do it. There’s the avalanche method in which you pay off the ones with the highest interest rates first. In the snowball method, you pay off the smallest debts first. The avalanche method helps you save the most because you pay the biggest high-interest loans fastest while the snowball method has the advantage of helping you stay motivated as you knock off smaller debts altogether. You could also talk to your debtors and negotiate better terms as you repay.
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Budget and track spending
Track your spending to know what you’re spending your money on. Next, now that you know how much you need for essentials, make a budget, and stick to it. Immediately work to stop the bleeding by cutting non-essential expenses and reducing expenses. You could reduce expenses by, for example, taking public transportation instead of driving and cooking instead of ordering in. For example, you could cut any credit cards you have that encourage impulse and reckless spending. The bottom line here is to limit expenses and make sure you don’t create any more debt.
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Track your progress
Keep a spreadsheet and other visual reminders to chart your progress. This will keep you motivated over the long repayment period and keep you focused on the goals you are yet to achieve.
Breathe
Cut yourself some slack, whether it’s circumstantial or as a result of bad choices, remember that everyone makes mistakes. The important thing is you’re working towards correcting things. Even as you tighten the purse strings, remember to allow yourself a little fun. This life is hard, eat the occasional ice cream and go on that single outing with friends. Remember Dory’s timeless advice, just keep swimming.
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