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How to Break Free From the Debt Cycle and Regain Control of Your Finances

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Borrowing has become a way of life for many of us. Going into debt is easy. You can accumulate thousands of dollars of debt in only a few months, but it takes years to pay it off. Some forms of debt are actually useful because they allow us to get resources that we can invest in our future, but student loans and mortgages can take a substantial part of your monthly income. You get used to it. You know you’re not alone. It’s normal. But this also means you might end up living paycheck to paycheck, and any emergency can trap you into a debt cycle.

When you add credit cards, auto loans and payday loans – all of which are aggressively advertised to consumers – you can see how things can spiral out of control. Getting out of debt can be very difficult, but it’s doable. You will need patience and discipline. If you’re struggling with debt right now and you don’t know how to regain control of your finances, this article will take you through some of the most effective strategies.
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Understanding the Debt Cycle
When you spend more money than you earn, you go into debt. At a certain point, the cost of interest rates can put significant strain on your monthly expenses so you can barely afford to make the minimum payments. This can make your debt increase faster, and if you can’t adjust your budget, you end up taking more loans in an attempt to pay off existing loans and keep your financial situation from spiralling out of control- the debt cycle.

If the cost of interest rates and penalties make it too difficult for you to repay the principal - the initial amount of money you borrowed – you’re in a debt trap. This usually happens when the minimum payments on existing loans exceed 25 to 50% of the borrower’s monthly income, so they are not left with sufficient funds to cover their living expenses.

Face Your Debt
Even if you can still afford your monthly debt payments, you’re treading on shaky ground. Your debt is limiting your lifestyle decisions. You might want to make career changes and move to another city or country. This is too risky when you’re in debt. Events that are out of your control like a medical emergency, losing your job or your car breaking down can destabilize your budget. The only way to regain your freedom and control over your life is to get out of debt.
The first step is to face your debt. Before you start considering your options, you’ll need to find out how much debt you have accumulated and how much this debt is affecting your finances. Calculating your debt-to-income ratio will give you a clearer picture of how much of your income goes towards paying off your debt. Your debt-to-income ratio results from dividing your monthly debt payments by your monthly income, and it’s used by lenders to assess a person’s ability to repay a loan. A high ratio would suggest that the applicant may struggle to pay off the loan, so approving the application is a risky investment.

Analyze Your Budget
Once you know how much your debt is taking out of your monthly income, you’ll need to analyze your budget to figure out how you can adjust. In the initial phase, you’ll want to focus on keeping track of your spending habits, so you can figure out where the rest of your money is going. You can do this by simply taking notes on your smartphone or a traditional notepad. Write down everything from utility bills to coffee. If you buy a stick of gum, you’ll still want to write it down. You’ll be surprised how small but frequent purchases can take a toll on your budget.
The good part is that it’s a lot easier to make small changes to your lifestyle. Let’s say you like to pass by a coffee shop every morning before work. This is not a necessity, but it is something you enjoy. Considering your current circumstances, this might be a small pleasure you can sacrifice for the greater goal of regaining your financial freedom. You could make your coffee at home and take it with you. Whenever you have to make these changes, keep in mind that this situation is temporary. You may have to cut back now, but this doesn’t mean you’ll have to live the rest of your life like this.

Negotiate With Creditors
If you’ve fallen behind on your monthly payments, chances are that you’re creditors or collection companies are calling you day and night. Instead of dodging their calls, you can offer to renegotiate the terms of your loan. Even if they haven’t started calling you, you can take the initiative and call them yourself. Alternatively, you can contact a company that specializes in negotiating better terms with your creditors on your behalf. You’ll probably meet with a credit counsellor who will explain the various debt relief solutions that fit our circumstances.   
These negotiations won’t make your debt disappear, but they can lead to lower interest rates, lower account balances and more affordable monthly payments. This will make it a lot easier to get a handle on your debt. For instance, if you have credit card debt but your credit score is still reasonably good, you can get a personal loan with much lower interest rates. Then you contact your credit card company and tell them you want to settle your debt. You may be able to get them to reduce the balance because they’ll be getting the entire amount owed in just one lump-sum or a maximum of three payments. You’ll save money by lowering both interest rates and your balance.

Save for Emergencies
Telling you to save for emergencies while you’re trying to pay off your debt may seem counter intuitive because you’re already trying to channel everything you can save towards getting out of debt faster. Still, an emergency fund can provide a much-needed safety net that can help you stay on track and prevent accumulating more debt. Often, people get into debt, precisely because of unexpected events that destabilize their budget. Since you’re already cutting back on your expenses, you can put a small amount aside that you can use if something happens.

Ideally, an emergency fund should cover 6 to 12 months of your living expenses, but right now, try to set aside a few hundred dollars over the course of a few months. It will already be budgeted for, and it will give you some reassurance.
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Copyrighted Content, Images and Hardwork of HomePlansIndia.com @ 2011 - 2021, Atelier ARBO (OPC) Private Limited (Previously RSDM Architects), Mumbai, India
  • HOME
  • SAMPLE DESIGN
    • Free One House Plan - 1 for Download
    • E-Book 1 of House Plans by HomePlansIndia.com
    • E-Book of Apartment Floor Plans
    • Sketches
  • SERVICES
    • Architectural Design Consultancy
    • Master Planning and Design
    • Landscape Architecture Design
    • Parks, Playgrounds and Children's Play Area
    • Interior Design
    • Structural Design and Detailing Consultancy
    • Building Services Consultancy
    • 2D Rendering & 3D Modelling in Sketchup for Floor Plans
    • Freehand Watercolor Rendering of Site Plan & Floor Plan | Architecture Sketch | Hand Rendering
    • Cost Estimation of House Plan
    • Online Consultation for Architectural Design
  • CUSTOM DESIGN
  • PRICING
  • ARTICLES
    • What 2020 taught us about small home living
    • Narrow plot house design in India
    • Terrace Garden Landscaping
    • Tiny Home Design Ideas - An adventure for our future from 2020 onward
    • Online Architecture Practice During World Pandemic 2020
    • How to choose the best outdoor Solar light for walkways and landscaping
    • Boston Design Week 2020 - Presented by Architect Rinka D'Monte
    • Apartment Building Elevation Design
    • Container Homes | Homes with Shipping Containers | Steel Houses | Modular Structures
    • Hire an Online Architecture Firm from Mumbai
    • Importance of having nurturing Indoor Plants for your house
    • Top Ten Green Home Building Ideas
    • Sustainable Building Materials to consider for your House Construction
    • Sustainable House Design by HomePlansIndia
    • Importance of Passive House Design and Construction in India
    • Why Outdoor living spaces are as crucial as designing the interior spaces when planning for a new house
    • 5 Architectural Design elements which make a small house plan look and feel big
    • What is Rain Water Harvesting and how to do it for your house
    • How solar energy can reduce energy consumption for your weekend bungalow.
    • Design a House with Proper Light and Ventilation
    • Advantages of Green Roof for new Bungalow Designs in 2015
    • What to add in your bucket list when you are planning your house floor design-2015
    • Stages of House Construction in India
    • Calculate the Cost of Constructing a Bungalow in India
    • 10 Different flooring material suitable for Bungalows in India
    • The need for structurally sound housing in India
    • Importance of Contemporary Family House Plan
    • 5 Basic Design Flaws to watch out in a House - Home Plans India
    • 10 Reasonable Questions to ask Prospective Contractor for building your House
    • 10 Reasons why small house plans are best for 2014
    • 15 Steps to Draw a House Plan like an Architect
    • How to Draw a Simple House Plan
    • Why buying House Plans Online in 2015 makes sense for plot owners in India
    • 10 Important key features for planning and building an energy efficient house in India
    • Top Five Green Home Building Ideas
    • Guest Post 1 - Custom Home Plans and Design
    • Guest Post 2 - How to Paint the Exterior of Your Home?
    • Guest Post 3 - How to Improve Your Home’s Value with Super Screen
    • Guest Post 4 - Home Construction and Home Design: Prefab Homes
    • Guest Post 5 - Advantages of Windows with Blinds
    • Guest Post 6 - Redecorating your kitchen on a budget
    • Guest Post 7 - Map mural designs for your room decoration
    • Guest Post 8 - Interior Decoration Trends to Look-Out for in 2019
    • Guest Post 9 - Smart Houses: What Are They? , and Should You Build One?
    • Guest Post 10 - Popular Styles of Vinyl Replacement Windows
    • Guest Post 11 - 10 Small Kitchen Designs in 2019: IDEAS AND ADVICE
    • Guest Post 12 - Provide an Elegant Addition to Your Home’s Exterior
    • Guest Post 13 - Common indoor plants for health benefits
    • Guest Post 14 - Opt for Bathroom Renovation after Paying Off Existing Debt
    • Guest Post 15 - Cutting Grass is Essential for Proper Growth & Health of your Lawn
    • Guest Post 16 - How to Design a Kitchen with Beauty and Class
    • Guest Post 17 - Save Money with Outdoor Solar Lights
    • Guest Post 18 - How to Break Free From the Debt Cycle
    • Guest Post 19 - Best Energy Efficient Space Electric Heaters
    • Guest Post 20 - Living Room Design: Do’s and Don’ts
    • Guest Post 21 - How to Design a Home with Beauty and Class
  • HOUSE PLANS
    • Small House Plans
    • Family Home Plans
    • Apartment Building Designs
    • House Floor Plans
    • Master Planning of Row House
    • Luxury Bungalow Plans
    • Sustainable Homes
  • PROJECTS
  • CONTACTS
    • ABOUT US
    • LEARN
    • FAQ
    • BLOG
    • DONATE
    • Guest Post Specifications
    • Terms & Conditions
    • Sitemap
    • 404
    • 301