December 3, 2022

7 steps on how to get out of debt and start saving money

Finding solutions on how to get out of debt and start saving money is essential so that you can change your financial reality and stop working just to pay off loan slips, finance, and accumulate credit cards.

That is why, and to help you out, we have created this step-by-step guide on how to get out of the red even with a little earning.

Just as important as knowing how to settle debt and save money is by maintaining the habit of organizing finances so you don’t fall into debt again in the future.

Are you ready to learn how to get out of debt? come with us!

How to get out of debt in 7 steps

1. Know how much you owe

Do you (actually) care about your money? Many people only look at it when they’re in debt, because before that, “He puts it on the card, I’ll pay next month.”

So, to begin with, you need to know exactly how much you owe and not just an approximate amount. After all, it is imperative that you know the size of the animal you are facing.

So stop being afraid of your debts, run away, and let’s find out how much you owe!

One note: “principal” is the name given to the initial amount of your debt. If it’s on your credit card, for example, it’s the amount you’ve already spent minus your current interest.

To find out the amount of each of your financial debts, contact your creditors (the company or person you owe):

Explain that you are in a difficult financial situation, but do not want to default, show that you want to know what you need to do in order to pay off the debt as soon as possible.

Let’s also say that you are asking these questions because you have started organizing all your debts to start paying them off, and soon, they will contact you again to arrange payment.

After speaking to all of your creditors, you should have a shortlist.

Now is the time to organize that list!

2. List your debts starting from the highest interest rate to the lowest

If you are looking for alternatives on how to get out of debt, the important step is to list them starting with those with the highest interest rate.

This is important because these are the hardest debts to pay off and they continue to grow. Therefore, they must be immediately renegotiated, whether to pay in installments or to reduce these interest rates. It’s time to “stop the bleeding”!

But before you renegotiate debt, we need to know how much you can pay per month to reduce that debt.

3. Organize your finances to start paying off your debts

To organize your budget, you can use a sheet, an Excel spreadsheet, or a finance app. Really: it doesn’t matter, as long as it’s not automatic and you write what goes in and out yourself, okay?

For those who love apps, there are many options on the market. The important thing is that you don’t spend time choosing this one; Start first, after it becomes a habit you can choose other apps.

Whichever variant you choose, the process will be the same, so get to work!

First, you will write down all sources of income i.e. the money that goes into your account. Most people only have one source (salary), but if you have more, make a note of that as well.

Here it doesn’t matter if you received a week, two weeks, or a month, everything should be written down. And if your income is variable (it never changes), start by writing down the average of what you’ve received in recent months.

To make organization easier, write down the date you expect to receive it, a description to see what it is, and the value of each of the receipts.

Now is the time for outputs, i.e. bills to be paid. Start by listing all your fixed expenses, which are those that recur monthly in your budget or vary very slightly.

Here are some examples:

Rent and apartment
TV, internet, and mobile phone plan
Dental health plan
Loan installments and financing
Insurance (property, car, cell phone, etc.)
Subscription services (Netflix, Spotify, Amazon, etc.)
Cleaning and laundry service
flat taxes
Tuition fees for college, academic, courses, etc.
Subscription clubs (books, wine, clothes, etc.)
Services of self-employed professionals (private tutor, psychologist, accountant, etc.)

Also include essential variable expenses, which are the ones that can’t be cut out of your budget at all, for example:

Food (supermarket, fair, butcher shop, greengrocer, bakery, etc.)
public transport or car fuel
Babysitting / daily service
parking
Pharmacy (for those on ongoing medication)
Personal care (hygiene and wellness products)
cleaning products
Houseware
Pet food and products in general

4. Usually keep your money in order

Did you feel criticism? Type. It doesn’t matter if you’re using a notebook, spreadsheet, or app. Every time you receive or spend money, you must write it down somewhere.

If normallyOrganizing financial affairsAnd looking after your budget is a daily practice that must be maintained so that you can get out of debt and save money.

Remember that this process must be done for the rest of your life and this is what will put you on a new level in your financial life.

By managing to save each month, you will be able to create your own emergency reserve, which will protect you from any unexpected finances and prevent you from falling back into debt because you are caught by surprise.

5. Create an emergency reserve

If you put all of your money into bills and debt payments, you are taking a huge risk, because any situation that happens to escape your budget may force you to take on more debt because you will have nowhere to take the money.

Therefore, if you want to know how to get out of debt and never fall into debt again, you must create your own emergency reserve.

It represents an amount that should be enough to cover six to 12 months of monthly living expenses, depending on your professional fortitude.

“But there really isn’t anything left, I can’t keep anything.” If this is the case for you, then your lifestyle doesn’t match your budget.

You need to review what your financial priorities are, and what they are excess expenses about the need that can be reduced or reduced, and your accounts organized so that your income is sufficient to cover all your expenses and you still have some money to prepare your reserve.

Be honest with yourself: Are you really saving on everything you can afford? Now is the time to make cuts, review unnecessary expenses, and make a careful analysis if you really need to buy everything you buy today.

6. Re-negotiate your debts

Another important step to getting out of debt is to renegotiate with your creditors and see if interest rates can be lowered.

Now let’s get to work. Call the first number on your debt list that has the highest interest rate. For most people, the debt will be on the bank: a loan, overdraft, or credit card.

While negotiating, you must be firm and know what you are doing. Have your debt information handy, such as the principal amount, the current amount, and the installment you’re paying.

In addition, you also need to be clear about your personal finances to know your monthly balance available to pay off your debts.

Talk, explain the situation, and say you want to pay, but you need your creditor to help you make it happen. Finally, make an offer. Here’s an important tip: Never accept your creditors’ first bargaining proposal.

They already have margins built in to negotiate with you, so be tough and ask for discounts. Start by offering an amount close to your capital, and divide it into installments that match your monthly budget.

Also, do not accept higher interest rates when paying in installments! If necessary, ask to speak with your supervisor, manager, or employer.

But go to the end without laziness and without shame. Remember your goal: get out of the red and debt-free.

If the proposal isn’t accepted now or the creditor suggests a settlement you can’t afford, don’t despair. Wait a week and call again to try a new negotiation. If you really don’t have a way, leave it to the next debt on the list.

Generally, creditors don’t accept the first proposal you make, but over time they tend to see that it’s also bad to not get paid and end up relaxing the rules a bit to compromise.

Also, take advantage of the “clear name” fairs held by the major credit bureaus in the country. These are excellent opportunities for you to renegotiate your debt and manage to reduce the amount you owe in the box.

7. Make extra income

We know it can be difficult to stay committed to paying down debt when you see all your money “wasting away” in installments.

So, do you know what can help speed up the process and help you build up your emergency reserves faster?

Earn some extra cash! Does this mean you will stop playing your video game? Who is watching your series on Netflix? potential. The more time out of your day you dedicate to additional income, the more results you will get!

Trust me: right now, it pays to make the extra effort and get out of that debt soon!

In addition, after paying off all your financial debts, the additional income will also be necessary to invest and build up your financial assets to ensure a more peaceful future.

get out of debt

6 financial habits so you don’t fall into debt anymore

By following these steps on how to get out of debt and save money, you will be able to get out of it. It may take a few months or a few years, but the situation will change.

In any case, it is important that you maintain good financial habits to prevent you from falling into debt again after you are able to settle all your outstanding debts with your creditors.

How about a list of six habits that can completely change your financial life?

1. Watch the money

We’ve mentioned this before, but it bears repeating: You need to be mindful of your finances on a daily basis.

Any financial movements must be noted, all your income and expenses must be under control and your personal cash flow must be clear to you.

Know where you spend, how much you earn, a penny. Do not neglect the financial control part, because the main thing for you is to be able to pay off your debts and not be in the red again.

2. Have goals

Why do you work every day? Why do you get out of bed? What are your goals and your goals in the short, medium, and long term?

It is important that you know these answers so that you have a greater goal in your financial journey and achieve your dreams as well.

3. Live one step below

Lower your standard of living. It will serve you well and your recognition of what really matters.

You don’t need a zero car or the latest model cell phone. Rethink your lifestyle and take a step down. Your pocket Thank you!

Remember that this must be done not only if you do not have a lifestyle that does not match your income today, but also when you start earning more.

Having a higher income does not mean that you will have to spend more, but you will be able to invest more and save for your future.

4. Save, invest and think about the future

Speaking of the future, saving and investing are two essential steps to never falling into debt again. Stop by and make an account: How much money would you get if you saved 10% of all your paychecks since you started working?

Probably a lot more money than you have today, right? Know that the main responsible for this amount is not how much you earned or saved, but how much you saved and invested.

So make it a habit to always keep at least a little of everything you receive.

5. Pay yourself first

Are you one of those who complain about “not having enough money to save”? One piece of news: there won’t be any left!

Because what works is the opposite: you don’t save what’s left, first you save and only then spend what’s left.

Each month, when you receive your money, keep a portion for the future even before you pay the first bill.

See it as a boost from you to yourself, so prioritize your financial peace of mind knowing you’re saving a little each month.

6. Never stop learning

Articles, blogs, books, YouTube channels, courses, lectures, and financial education is an endless topics that will not enter your mind in one day.

Bring this valuable topic into your daily life. Talk about money matters with your family and friends, invite them to take a course with you, and send them this article.

The more this type of information spreads, the better everyone’s financial education will be.