Racking up debt can quickly turn into our worst nightmare. Even if we shovel it under the carpet! But it’s not all doom and gloom, as there are many ways on how to clear debt. And there are a lot of good reasons to get a handle on it before it spirals out of control. For one, it can destroy our credit score. Not to mention that you will be cash-strapped in the future with the debt towering over you! But once you conquer it, you’ll be on your way to being financially free!
How to clear debt in 5 different ways
It’s easy to let the debt creep up on you. After all, credit card companies offer cards with high limits and low-interest rates to attract first-timers. The promotions are really enticing, so it’s no wonder many people take them out! But reckless spending, lack of budgeting and poor financial awareness mean you can be left with a hefty bill that outweighs your ability to pay it off without damaging your credit score. There are a lot of easy ways to manage your debt.
1. Stop all types of borrowing!
First things first. Stop. Borrowing. Using a credit card is exactly that – spending money that you don’t have yet. Swiping plastic seems convenient and easy, but that’s exactly what lands people in hot waters in the first place! If debt is proving too much for someone to handle, the sensible thing is to stop using the credit card at all. And this goes for any other type of borrowing as well. When you can learn to say no, you’ll have successfully plugged all the holes in the ship. The next step is just to remove all the water!
2. Change your lifestyle
You’ll need to consider living below your means, rather than within them. Just because your salary allows you to eat out every day and enjoy daily Starbucks doesn’t mean you should. And this goes for your other expenditures. Budgeting means figuring out what is essential and what is a luxury. Anything that isn’t necessary is considered extra. And anything that can be spent on extra should go towards chipping away at your debt.
It can be uncomfortable saying no to social gatherings or activities, but this is for the short-term.
3. Sell additional items
Time to play The Price Is Right! If you’ve got any valuables or items lying around that you haven’t used in a while, now’s the time to sell! All of the hidden treasures and forgotten things you’ve hoarded over the years can fetch you a good price! And even if it doesn’t raise up millions, these assets can really help offset the total amount of debt. This is a useful method if you’re not sure how to clear debt quickly. If you’ve got readily available items in the garage or stopped a certain hobby, check online to see how much you can fetch!
4. Start a side hustle
No one said clearing debt would be easy. Putting in extra hours of work might seem daunting. But consider this a fantastic opportunity as something that goes far beyond the project of clearing debt. There are LOTS of ideas that people can start as a side business outside of their 9-5 jobs, all doable for less than Php50,000. And for the entrepreneurs amongst us, starting a franchise can actually free you from your normal job as you become a full-time business owner! Of course, the initial profits will need to go into clearing your debt, so starting a side business with low overhead and startup costs is advisable.
5. Take out a debt consolidation loan
If there is a lot of debt accumulated across different sources (e.g. credit cards and auto loan), it can feel overwhelming when figuring out how to manage it all. Now, we mentioned in the first point to stop borrowing altogether. Well, this is the exception. Taking out a debt consolidation loan can be the ticket to managing the payments in a simple and coherent way! A debt consolidation loan can be preferable when considering how to clear debt.
This is mainly because of the lower interest rates that banks are willing to offer. When you approach a bank asking for this type of loan, it shows commitment on your part and a sense of responsibility to pay off your debt. The initial amount doesn’t change, but you’ll save a lot of money in the long-run thanks to the lower interest rates.
To see how much you could possibly take out, try using online tools like the BPI loan calculator. These give you rough estimates on how much you could borrow based on your personal information.
What if I get rejected from a personal loan at the bank?
However, if your credit score has taken a hit, banks might not be able to offer you a good interest rate. This is where private lenders for personal loans can be handy. If you’re looking for a more immediate solution, private lenders can fork out a loan, albeit of a lesser amount than banks might offer. The application process is quicker and your credit history matters less. But it’s worth noting that the interest rates will be much higher.
If you take out an unsecured private personal loan, you’ll be relying on your credit history a lot, since it’s the only way the private lender can base your ability to pay on time. A secured loan may be easier, as you offer an asset of considerable value, like a vehicle or equipment.
If you know anyone who’s wondering how to clear debt, share this article! Better to start sooner rather than later!
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