So you’re up to your neck in a
massive pile of debt. There are many circumstances that could have led
you here, but responsible financial planning is the one that will get
you out. Most debt situations can be corrected with careful planning and
intense effort over a period of one to three years.
You’ll need to include everyone in your
household and be honest about the need for focused debt reduction
efforts. You can do it if you follow these steps to achieve pay off all
outstanding debt without filing for bankruptcy protection:
• Save as little as N500 – Figure out how
to save N500 in an emergency fund that will be accessed in the event of
an unexpected expense during the debt pay off project. Eliminate every
discretionary expense possible and accumulate enough funds to meet the
N500 goal.
• Organise debts – Make a chart of every
outstanding debt in order from smallest to largest without any concern
for interest rates. Immediate feedback will be realised when smaller
debts are paid off early in the process.
• Stop all credit card use – Cut up the
credit cards and spend cash even at the grocery store. Take absolute
control of the monthly expenditures by starting a budget. Write checks
to pay bills and allocate cash for all other budget categories.
• Trim the budget – Make some difficult
decisions and eliminate any expense that is not directly related to
supporting the family. Consider disconnecting the cable television
service until the debts are repaid. Reduce the land line phone bill by
removing unnecessary features. Determine if more than one cell phone is
necessary.
• Do not go shopping – Avoid shopping for
anything except for groceries. When shopping for groceries, buy items
on sale and learn to cook from what is present in the kitchen. Reduce or
eliminate eating at restaurants until all the debt is repaid.
• Pay the minimum on all but the smallest
– Every debt must be maintained in good standing to eliminate
unnecessary fees. Pay the minimum payment amounts on all debts with the
exception of the smallest on the list. Apply as much money as feasible
within the budget to the smallest bill. Be realistic when setting this
amount to prevent shortfalls in other budget areas.
• Reward yourself – When a debt is paid
off completely, reward the family. Order pizza or purchase a new game
for family game night. Use non-monetary rewards so everyone learns the
value of time together over spending money.
• Apply funds to next debt – Take the
amount that was used to pay off the first debt and add it to the minimum
payment that has been paid on the next debt on the list. This method
will accelerate the amounts paid on the larger debts. The accumulation
effect will cause faster progress in the later months of the process.
Every time a debt is paid off all of the money is rolled into paying off
the next debt.
•Delay unnecessary purchases – Throughout
this process, the expense level must be reduced within the household.
Spending cannot continue as usual if real progress is to be made on the
debt repayment plan.
• Celebrate success! – When all of the
debts have been repaid, immediately start a savings plan that will
prevent the situation from repeating itself. Attempt to save half of the
amount that has been applied to the debts of the previous months and
years. Decide together on a reward for the family’s achievement.
Financial spending habits must change to
prevent a recurrence of the indebtedness. Live according to a family
budget and ensure that all bills can be paid within the month they are
incurred. Evaluate the period of the debt repayment plan and determine
what works for the family. Keep the best activities of the financial
discipline learned throughout this period as good financial habits.
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