Debt 101: Debt Crushing Tactics
What is Debt?
The first rule of Debt 101 is answering the age-old questions, what is debt? If you have to keep working, you have a debt to something or someone. Here at WealthHunters, we believe that everyone should have financial freedom, so we’re going to explain the inner workings of financial management to you, and hopefully, you can break free.
Types of Debt
There are various types of debt that people will see in their lifetime, but we can break them down into two categories, so things are simple. There’s secure and unsecured. Secure debt is when someone lends you money, and there’s a title attached to it.
WealthHunters’ Debt Definition:
Living to work, not working to live.
If you’re applying for a car, home, boat, or even a TV – this is considered secured debt. It’s secure for the lender because if you don’t pay, they can take the item away from you through the repossession process. On the other end of the spectrum, we have unsecured debt. Credit cards, personal loans, and lines of credit fall under unsecured debt. It might be easier to get a secured line of credit when you’re first starting out because the risk is lesser for the lender.
How to Get Out of Debt
When you’re trying to get out of debt, the first thing you’re going to want to do is to look over your budget. When you’re establishing a budget, you’ll have to break down your debt into sections and explore your income level.
Some people find themselves buried deep because their spending habits are often too high for their incomes or due to financial hardship. You’ll be happy to know that there is a way out- improving your personal finance skills. Below are four different ways you can manage your money:
It can be wise to consolidate your credit card debt if you feel like you’re paying an obscene amount toward it every month and your balance isn’t diminishing. Credit card rates can be insanely high, so it’s smart to consolidate credit cards into one affordable monthly payment.
Some graduates also find that consolidating their student loans into one single payment with a single interest rate makes life easier. Instead of making multiple payments to different lenders, combining costs can make the process cheaper.
You can apply for credit (the total pay off balances of all of your debt), and if they approve you, they will give you a flat interest rate and a payment plan. I would personally recommend applying with a credit union rather than a bank because their interest rates are often significantly lower and after all, you’re trying to save money – right?
Increase Your Income
This isn’t always a fan favorite because it requires you to be uncomfortable. The path to financial freedom is a bumpy one, but the benefits of being debt free are worth it. One viable option might be the creation of passive income, so you can increase your revenue without adding on additional work.
Everyone knows something that someone else doesn’t. Think about the one thing that everyone always asks you for advice on, and create an e-course or an e-book for it. This will generate income for work you only had to do once!
If you don’t want to go that route, you can also get a side gig! There are loads of work-from-home companies that offer potential side jobs, both temporary and permanent. If you’re a fast typer, you can transcribe content for movies and shows through companies like REV. If you’re social media savvy, you can perhaps become a Social Media Quality Rater. You can frequent job postings on sites like The Penny Hoarder and even Craigslist.
During the holiday seasons, major department stores usually hire temp employees to help them get through the craziness of Black Friday and Christmas. You can apply online and put any extra money you make towards your savings goals.
Lastly, you can always ask for a raise at your current job. A lot of people freeze up at the idea of asking their boss for more money, but you’ll be surprised to know that most employers are willing to at least talk about it. In the wise words of Sophia Amoruso, founder of Girlboss, “You don’t get what you don’t ask for.” If you’re a little choked up about what to say or do, read Glassdoor’s article about it!
Pay Down Debt Aggressively
Once you find your way towards more money and have consolidated your bills, put a plan into action. I’m going to use myself as an example. A few months ago, I read Jen Sincero’s masterpiece – You are a Badass at Making Money. While some points in the book did seem to urge the reader toward getting farther into debt by paying for a life coach, it was still insightful and inspiring.
It got me thinking about my own student debt and car loan – how did I allow this to happen? I used my Budgeting 101 tactics to calculate the exact amount of money I would need to pay off my student loan debt and car loan. The total number was $1500 a month. I stuck to my guns and canceled the gym membership I never used and cleaned out my closet by selling things on Poshmark.
Between consolidating my student loans, canceling services I didn’t need, negotiating the bills I did need, and selling clothes I never wore – I was able to pay off my $2091.00 car note in a matter of months, while still having an extra $300-400 for me. I made a budget, and I stuck with it by being reasonable with myself. The excitement of seeing your balance dwindle to zero will eliminate the want to spend hundreds of dollars on yet another thing you don’t need.
This is the last man standing in the sea of options. If you do opt for a settlement service, be aware of the risks you may face. If you’re also on this money-saving journey, you’ll find that you’ll eventually find yourself super aware of the amount of energy it takes to make your money. You’ll stop seeing money as just a piece of paper and more as a representation of your effort and time.
When you start trying to claw your way out, you’ll be pickier about who you give your energy to. A debt settlement essentially means that the lender will agree to accept less than what you owe them. However, the risks here are apparent. Debt settlement services often charge their own fee to help you, which could prolong your financial plan by adding yet another bill in the mix.
The First Rule of Debt Settlement 101
Here’s the first rule of Debt Settlement 101: Remember that it will not get rid of late fees or collection notices. Consumers might end up owing taxes on any debts that are forgiven. The settlement company you work with should negotiate with your creditor to reduce the amount owed on things like credit cards.
If your credit card has racked up an insane amount of interest (as they often do), this might help. However, you can settle all types of mortgages. Sometimes banks take their properties back. If you didn’t pay your mortgage, the bank would foreclose on the home. When you fail to pay your car payment, the bank will repossess your vehicle.
Generally, these offers only work out when one has wholly stopped paying their debts, and their credit score has hit rock bottom. Do your research before settling with a relief company!
So there you have it – debt 101. If you look for ways to increase your income, you can steer clear of financial burdens. Financial freedom isn’t just for the 1%, although they would have you think that.