When you have debts you don’t see the light at the end of the tunnel. However, even if you have debts, you can lay the foundations for well-managed personal finances , saving more and more, ending your debts faster and faster and gradually reaching financial independence.
To achieve this it is necessary that you make a plan, step by step, from ending your debts to how to invest. Even if it seems impossible if you follow the next steps, little by little, and be patient, you will see how the results arrive. Some faster and others perhaps more slowly. But everything will end up coming.
8 steps to escape debt and build strong finances
It is the first thing you should do, especially if you are very drowned in debt. Negotiate with your financial institution to see if they can increase the deadline to lower fees, allow time without paying, etc. Banks, in general, will prefer to facilitate payment rather than having another delinquent loan.
You also have the option of reunifying your debts into one. I do not like this last case much because although the fee is reduced a lot in the end you end up paying more, much more. This is a point that you should make if you are very overwhelmed, but do not do it since any negotiation with the bank or if you choose the option to reunify debts will eventually end up paying more money.
Create a small emergency fund
Pay the minimum installment of all your debts but do nothing else without having created a small emergency fund . With 1,000 euros will suffice. There can also be two monthly payments of your monthly net salary. Or 10% of your annual net salary.
The important thing is that it is a small amount, it takes you to save it between 3-6 months. In this way you will be protected against any unforeseen expenses and you will not have to borrow again, falling into the vicious circle of debts.
Start paying the debt with the highest interest rate
Sort your debts by interest rate , from highest to lowest interest rate. Pay the minimum fee on all your debts and an extra on the first debt, to end it as soon as possible, by the time the first one is eliminated, move on to the second one. Another option is to order them by the amount you owe. Everything else is equal. The first method is better from a financial point of view but the second is from a psychological point of view. Do what works best for you .
Get rid of your credit cards
Take off temptation and more if a large part of your debts come from credit cards. If you cannot pay something in cash or with a debit card, you simply cannot buy it. Do not have credit cards until you are totally debt free.
Reduce your expenses as much as possible
You need to reduce your expenses to get out of debt as soon as possible. Just leave the essential expenses to live, the rest take them off or reduce them as much as possible. Dedicate all the money saved to pay off your debts. In the end you will realize that it is not a great sacrifice and that you do not need many of the things you spend your money on.
Start saving for retirement
Once you have eliminated your debts or almost, start saving for your retirement. Because the sooner you do it, the less you’ll have to save. While saving for your retirement, go building an emergency fund.
From the amount of money you save each month, do not forget to separate a part for each objective. Between 10% -20% of your total savings dedicated to your retirement and creating your emergency fund is a good start.
Save for large purchases
Get ahead of your needs and if you see that you are going to need a new car or a new television, start saving for that as soon as possible . In this way when you have no choice but to buy it, you will not have to ask for credits, but you can pay it out of your savings. Do not use the emergency fund for these expenses. The emergency fund is to pay unforeseen expenses, breakdowns, etc.
Unfortunately, saving is not enough. You have to invest, so that your savings grow above inflation and gain purchasing power. Do not be afraid of investment , choose the way that you find most comfortable and simple. It can be to invest in real estate or to invest in stock market. I follow the last option so the investment advice you see here in Eustacia Vye will be about this guy.
Remember that all the previous points will allow you to have a perfectly healthy life in your personal finances but to reach financial independence, to not always be tied to your work, this last point is fundamental. The reward is very much worth the effort and that you take away your fears.
I assure you that if you follow these 8 steps you will achieve, but financial independence, if a life free of economic worries.
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