5 Steps You Should Take to Get Out of Debt
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When you apply for a bad credit mortgage in Mississauga, your lender will consider many different factors. One of these - and probably the most important - is your overall debt-to-income ratio. If this number is too high, lenders assume that you will have difficulty making your mortgage payments on time. Here are some steps you can take to get out of debt before you apply for bad credit mortgages in Mississauga
#1 – Stop Borrowing Money
The first and most important step you can take toward getting out of debt involves a conscious decision to stop borrowing money. If you rely on debt to fund your lifestyle, then you may need to make some lifestyle changes. Consider reducing the number of premium cable or satellite channels you have or trading that smartphone in for something a little simpler. Small changes like this can save you thousands of dollars per year, which can help you reduce your debt over time.
#2 – Set Up an Emergency Fund
Many people find themselves head-over-heels in debt after borrowing a relatively small amount of money to help them out of a tight spot. For example, many people take out payday loans, which have tremendously high interest rates, to help them pay for car repairs. If they are unable to repay this loan on time (and many are), the rates skyrocket and the debt spirals out of control. A simple $1000 emergency fund can help alleviate these chances and keep debt at bay.
#3 – Create (and Stick to) a Budget
If you find yourself in a lot of debt, it is important to analyze those debts and whether you actually need them. Sit down with a piece of paper, a pencil, and a calculator, and actually tally up all of your monthly bills. Don’t forget to include things like money for groceries, clothing, household items, and more. Then, subtract this amount from your income. If your income is less than your expenditures, this means that you are relying on credit and you need to rework your budget.
#4 – Get Organized
Now that you’re making a plan to pay off your debt, you must actually organize it beforehand. This involves first determining all of your debt, from smallest to largest, regardless of interest rates. Then, start paying down your debt starting with the smallest first. When you successfully pay off your first debt, you will feel more encouraged to pay down the others.
#5 – Stop Making Minimum Payments
Finally, if you are making minimum payments on your credit card debts, auto loans, or personal debts - stop. You should always pay as much as you can possibly afford toward your debt to ensure that more of those funds are applied to the principle debt rather than the interest that you’re charged over the lifetime of the debt. This makes your debt lesser over time, which makes it easier and faster to pay off.
Getting out of debt is far from impossible as long as you have the dedication and determination to set and stick to a budget. Remember to set up your own emergency fund and make more than your minimum payments each month, and you’ll quickly find your debt dwindling.