How to get out of debt in four steps

How to get out of debt in four steps

Whether it's a student loan, a credit card debt, or a personal loan, we can all have a debt that worries us. This 4-step guide is the way to start getting things in order  

Being in debt is something that we all surely face at some point in our lives. The important thing is to know how to put our accounts in order before that debt follows us into retirement.

Step 1: Stop using your credit card

Credit is very easy to misuse. Anything we want is only one swipe away, whether we have the money to pay for it or not.  
So the first step is to stop using credit. Every time you use credit, you create more debt. 
If you are not comfortable carrying cash around you can still convert to a cash-based spending system by using a debit card or secured credit card. This way, you’ll never spend more than you have.

Step 2: Work your way towards the 50-30-20 rule

The 50-30-20 rule is simple to master:
500 percent of your after-tax income is for fixed expenses (or needs) like rent, car loan, student loan, internet, etc)
30 percent of your after-tax income is for variable expenses (or wants) like outings, memberships, designer clothes
20 percent of your after-tax is income for savings or for paying debts.
This percent-based budget will help you differentiate what you really need from what you want, and help you focus on bringing down those unnecessary expenses, and put part of that income towards paying your debt and saving for future emergencies.

Step 3: Stick to your new budget

The best way to start budgeting is to sum up your last six months' worth of expenses and income and then divide that by six. This gives you your average of what you have been spending per category as well as an average income.
Next, highlight items that are not essential (here, think Netflix subscriptions, eating out, clothes shopping) to find out where you can stop spending beyond your means.

Step 4: Arrange your debts by priority

This is the fun part of getting out of debt. You want to pay down your worst (highest interest rate or soonest due, for example) debt first. So list out each debt source in order from worst to best on your chart. Then cross each debt off as you pay it off.

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