People who find real and lasting debt freedom are those who understand that debt relief goes beyond the debt payments. If you concentrate on the payments alone, you will only get yourself out of debt. Staying out of it is another matter that you have to work on.
One of the effective and important habit that you need to develop is saving. You have to grow your emergency fund to remove the need for you to put yourself in debt. Instead of compromising your debt payments or borrowing money just to pay for the immediate expense, you will simply get from your reserves. That way, you will not put yourself further in debt and you get to keep your current payments obligations updated.
Some people actually think that they need to choose between debt payments or savings. This is a wrong misconception about how you can effectively get out of debt. The smart way to approach it is to do both. Split your disposable income so you can keep up with debt payments and grow your emergency fund at the same time.
With your limited income, you may be wondering how you can do this and still meet the minimum payments on your debts. There is a simple and effective debt solution to that dilemma – debt management.
What debt management does is to allow you to make lower monthly payments towards your creditors. It is a program that gets you to work with a debt counselor. This professional will help you come up with a debt management plan or DMP. This plan contains your debts and the amount that you can allot for each – based on an amount that you are capable of committing to without compromising the budget for your basic needs.
This lowered monthly contribution can happen because your current balance is stretched over a longer payment period and possibly a lower interest rate. The latter is not a guarantee in debt management but the debt counselor will aim for it nevertheless. They will negotiate with the creditor to allow you to follow whatever is written on your DMP. If they agree, you can send a single monthly payment towards the counselor and they will distribute it to the respective creditors on your list.
Since your usual payments are now lowered, you should now have a freed amount to place on your savings. Discipline yourself and treat your savings like a debt or bill that you have to pay off – no excuses.
Set up a budget that incorporates both your DMP and the amount that you have decided to set aside for your savings. Include it in that long list of expenses that you usually spend for every month.
It also helps to increase one’s income so you can increase your savings further. The more you have on your reserve fund, the better it will be for you. That way, you do not have to worry about any unforeseen emergency.
So prioritize both your debt payments and savings – that is the only way you can really get a lasting debt freedom.