Too much debt? Don't worry: 5 serious ways to clear your debt

“I Have a Lot of Debt, What Should I Do?” has become a question many people face during volatile economic times. Having increasing debt is not unusual, but what matters most is how we can resolve this issue with a clear and actionable plan.

Step 1: Understand the Types of Debt You Have

Effective debt management starts with knowing your debts well. The first question to ask yourself is: What type of debt do I have?

Good Debt refers to debt that leads to progress, such as a mortgage loan for a home, student loans, or business investment loans. These types of debt can create value in your life and increase future income.

Bad Debt refers to debt used for unnecessary expenses, such as credit card installments for a new smartphone when the old one still works well, or borrowing money for travel or leisure. These create unnecessary financial burdens.

Distinguishing between these two types is a crucial starting point for planning debt clearance. You should record and identify each debt as one of these types.

Step 2: Create a Personal Financial Assessment

Once you understand the types of debt, the next step is to thoroughly review your financial situation, including:

Monthly Income and Expenses: What is your monthly income? How much do you spend on housing, food, transportation, and debt payments? From this, how much money is left that can be used to pay off debts?

Assets and Possessions: How much money do you have in savings? Do you own assets that can be liquidated, such as unused vehicles or other valuables? These can be converted into cash to pay down debt.

Preparing a rough personal financial statement will help you see clearly your capacity to settle debts.

Step 3: Record All Debt Details

The third step is to gather all debt information in one place. You should write down or create a table with the following details for each debt:

• Creditor’s name (Bank, credit card, individual)
• Current outstanding balance
• Interest rate for each debt
• Monthly payment amount
• Remaining installments or months
• Due date each month
• Additional notes

This data will give you a clear picture of your debt structure and help you plan your repayment strategy. Remember to use actual figures and avoid overestimating or underestimating.

Step 4: Develop a Debt Management Plan Based on Priorities

After gathering all information, it’s time to create a plan with clear priorities. The sequence of actions should be:

1. Change Spending Habits: Reduce unnecessary expenses as much as possible. For example, cut subscription fees, avoid buying unwanted items, and save all possible money from lower spending sources.

2. Find Ways to Increase Income: Consider side jobs or switching to higher-paying positions.

3. Negotiate with Creditors: If you’re truly overwhelmed, contact banks or lenders to discuss extending repayment periods or reducing interest rates.

4. Consider Debt Consolidation: If you have multiple debts with high interest rates, look for a new loan with lower interest to combine all existing debts.

5. Pay Off Debts in Order: Start with the highest interest debt or the one nearing maturity. This approach helps you see progress and stay motivated.

Step 5: Follow the Plan Consistently

Having a plan is good, but consistent and persistent implementation is the most important. Once you start executing your plan:

• Review regularly, such as at the end of each month, to monitor progress.
• Adjust the plan as your situation changes; for example, if your income increases, allocate more toward debt repayment.
• Avoid taking on new debt while clearing existing debts.
• Track your progress to see cumulative results and maintain motivation.

Once some debts are cleared, start building an emergency fund and plan investments for a better future.

Summary: The Solution to “I Have a Lot of Debt, What Should I Do?”

The problem of “I Have a Lot of Debt, What Should I Do?” may seem discouraging, but with a clear plan and dedicated effort, you can break free from the debt cycle. These five steps are not just theoretical concepts but practical methods many people use to regain financial stability.

Remember: “If you spend money on unnecessary things today, you will have to sell necessary things tomorrow.” Now is the best time to start making changes. Follow your plan consistently, and you will see results for sure.