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Coming Back From the Debt Trench? 5 Ways to Do So

Coming Back From the Debt Trench? 5 Ways to Do So

There are different reasons for why a person might submerge himself/herself into debt—a sudden death in the family, loss of job and income, worsening health conditions, going through a divorce, and so on. Even without these unfortunate circumstances befalling a person, they may still get into a seemingly endless trench of debt thanks to the inability to manage cash wisely and the lack of discipline. Fortunately, it’s never too late to rescue yourself from the financially gloomy position you’ve put yourself in. Here are five ways to make a financial comeback from your debt trench.

Know Your Options

Knowing what your options are can drastically affect the outcome. Being limited with only one option can impede your progress of achieving the goal, which ultimately is to get out of that proverbial hole. Recovering from debt generally has three possible solutions: pay off any outstanding accounts, settle it, or file for bankruptcy. The latter, obviously, is something you should only consider if worse comes to worst. Debtors basically start to build a new credit profile within 24 months of settling their last unpaid account/s. The amount of time to recover from any of the three debt relief options will vary.

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Create a New Budget Plan

If you had a previous budget plan before you got yourself into financial debt, it’s time to wipe the slate clean and create a new budget plan that will fit your present circumstance and future financial goals. Write up a list of monthly expenses and compare it to your income. Take into account unforeseeable expenses into the monthly budget plan to cushion future financial blows. Include recurring expenses, such as therapy sessions and medication.

Trim the Fat

Proactively seek to lower monthly expenses. Cancelling magazine or channel subscriptions can free up substantial cash that can be used to repay outstanding debt and possibly grow passive income in the form of interest. Other ways you can trim expenses is to switch to generic store brands instead of pricier gourmet brands. Keep in mind that your lifestyle doesn’t have to take a drastic step back just so you can have more savings. Conducting extensive research and making regular self-assessments can continuously reduce expenses.

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Boost Your Credit Score

Poor credit score leads to higher loan interest rates or even rejected loan applications. A rejection from traditional loan options will force you to take on less conventional credit lines, like payday loans, which only give you more debt to worry about in the future. Boost your credit score through proactive monitoring or by signing up for a credit monitoring service. Check your credit reports and dispute any inaccuracies that may be impeding your credit repair goals.

Capitalize on the Right Credit Tools

Debt isn’t always a bad thing. Some debt options can work to your advantage if intelligently utilized. For instance, applying for a secured credit card instead of a traditional credit card gives you a safer line of credit in the event that you cannot pay the principal amount.

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With a secured credit card, you give the lender a security deposit in exchange for a line of credit. If you default on the credit payments, the lender takes the cash from your security deposit thus limiting the effects to your credit score.

Coming back from debt can seem like an insurmountable challenge, but with the help of these five tips, you’ll be able to gradually improve your financial situation while also permitting yourself to a healthy and normal financial lifestyle.

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Try these tips out and let me know what you think. What other steps do you recommend in dealing with debt?

More by this author

Kevin Faber

CEO Silver Summit

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Published on September 17, 2018

How Being Smart With Your Money Leads to Financial Success

How Being Smart With Your Money Leads to Financial Success

Achieving financial success is not something that just happens. Maybe if you win the lottery or something, but for the average person like you or me, it comes from a series of small steps you take over a long period of time.

With each step, you form a new smart money habit. And with each smart money habit, you build towards financial independence.

So what sort of habits can you form to get on that path? Let’s take a look at smart money habits you can start today to get you closer to a financially independent future.

1. Avoid being “penny wise but pound foolish”

It’s tempting to try saving a couple cents here and there when buying small items. However, that’s not where the real money is saved. You’re putting in extra effort for something that doesn’t move the needle.

You get the most bang when you’re able to cut down on your bigger bills. For example, finding a lower interest rate for your mortgage could save you $50+ per month. And cutting your transportation bill by purchasing a cheaper car or taking public transportation can provide large gains as well.

So, look at your recurring expenses such as housing, transportation, and insurance, and see where there’s wiggle room. It’s a much better use of your time than trying to pinch pennies here and there on smaller purchases.

2. When you want something big, wait

Impulsivity can get you in trouble in most aspects of life. Finances are no different.

It’s human nature to see something and want it right then and there. It starts as a kid in the checkout line at the grocery store, and it continues on through adulthood.

We get an idea in our head of something we want, and it’s hard not to go out and get it right then.

A good example is wanting a new car. Perhaps you’ve had your car for several years. It’s crossed the 100k mile mark. Maybe maintenance is due, and you’re annoyed that you need to replace the timing belt or purchase new tires.

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So, you get the itch.

You start digging around online, and you realize you could trade in your current car for something newer and more exciting… all for a few hundred bucks a month. Then you get obsessed.

Here’s where you have to take a step back.

Your newfound obsession is clouding your judgement. Rather than giving into the impulse, wait it out.

Set a timeframe for yourself. Maybe you come back to the decision three months down the road. See if the obsession lasts.

It might, but often, a funny thing happens. Often, you forget about it. And often, you find that the new car wasn’t a need at all.

The impulse faded. And you just saved yourself a ton of money.

3. Live smaller than you can afford

You finally get that big raise. And you want to celebrate – and why not?

You’ve been looking forward to this forever. And after all, it was all due to your hard work.

That’s fine, splurge a little. However, make it a one-time deal and be done.

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Don’t get caught in the trap that just because you’re now making more money, you should spend more.

Too often, people get more money and feel like they that gives them the means to buy a bigger house, a bigger car… you know the drill. Resist.

The fact is that living smaller than what you can afford is one of the fastest ways to build savings.

But if you constantly upgrade as you begin to make more, then you’ll never get ahead. You’ll just build up more debt along the way and have just as little wiggle room as before.

4. Practice smart grocery shopping

Food… it’s one of the biggest portions of any budget. And if you’re not careful, it can be one of the biggest drains on your wallet.

But luckily, there are a few things you can do to ensure that you stay smart with your money when buying groceries.

Create a grocery budget

Set a strict weekly grocery budget. When you know how much you can spend on groceries, you can then plan your weekly menu around it.

Once you know what all you need, you can go shopping and keep a running tally as you shop to ensure you’re on track.

I tend to do this in my head, rounding for each item. However, writing it down as you go would probably work best for most people.

Make a list… and never deviate

Never go to the grocery store without a list. If you go to the store with a ballpark idea in mind, you don’t have a true ide of what you need.

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You’re not well-researched. You don’t know what the sales are. As a result, you’re going to make decisions on the fly.

These impulse decisions will lead to overspending, which will derail your grocery budget.

Eat before going grocery shopping

It’s also important to eat prior to going to the grocery store. Hunger is a powerful force.

If you’re shopping on an empty stomach, everything is going to look good. In particular, you may find a lot of ready-made, processed snacks will look enticing.

After all, you’re hungry now and that food is easily available. So subconsciously, you may lean towards those items.

Unfortunately, not only are those items typically less healthy, but they’re likely more expensive. You pay for convenience.

However, when you eat prior to shopping, then you’ll shop with a clear mind. Your hunger won’t cloud your judgement, influencing you to make poor decisions like a cartoon devil resting on your shoulder whispering in your ear.

This makes it much easier to stick to your grocery plan.

5. Cancel your gym membership

Now that you’re all set on your food, it’s time to get smart about managing your budget in terms of physical fitness. And let’s begin by avoiding the gym. The gym bill, that is.

The average gym membership costs around $60 per month. That’s $720 a year.

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Yet, two out of three gym memberships go unused. That means two-thirds of people who have a gym membership are literally giving away almost a thousand bucks a year. It’s crazy!

I recommend seeking an alternative. One good alternative is to look into fitness streaming services.

Streaming services allow you to stream hundreds of workouts like Insanity and p90x, right in your own home for around $10-20 a month. That’s $40-50 less a month than the average gym membership.

Of course, then there’s the free option. The internet is full of free workouts that you can do on your own with minimal or no equipment.

For example, there’s the Couch to 5K program, that I personally used a decade ago to ease myself from couch potato to running my first 5K race. If I could do it, anyone could.

Then there are free resources like reddit that have limitless information on workouts. The Fitness subreddit has done all the research for you, populating workout tips and detailed workout routines for anyone to use in their wiki.

There are several routines that require no equipment. And you can join in on the subreddit to become part of the community, making it easier for those seeking comraderie and encouragement in their fitness goals. All for free.

It’s baby steps… And baby steps can start now!

I’ve never met anyone that can’t stand to be a bit smarter with their money. And on the flip side, anyone can get smarter with their money. But remember, it doesn’t happen all at once.

Begin by fighting your impulses. Prepare for the week and be smart at the store. And cut monthly expenses like gym memberships that are overpriced and you probably aren’t getting your money’s worth out of anyway.

The devil is in the details. And the details can change your lifestyle and prep you for a financially independent future.

Featured photo credit: Unsplash via unsplash.com

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