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What Should You Do After Being Free From Debt?
  • admin
  • June 26, 2024

What Should You Do After Being Free From Debt?

It is easy to be caught up in a debt spiral, but extremely complicated to get rid of it. While many of you have several excuses to pass the buck, the fact, according to experts, is that you borrow more than your affordability. The easy availability of loan options is partly blamed for you being saddled with debt. But when you are committed and consistent to the settlement of your debt, this will happen.

You sigh when you make the final payment, and your debt becomes over; finally, you have broken the back of the beast. Unfortunately, there are some people who do not learn from their mistakes and stop depending on the best personal loans in Ireland. You should never make that mistake again because you can fall into an abyss of debt again, and this time, it might be all but impossible to get out of it.

Money moves to make when you are free from debt

Here are the money moves you should make after paying off your debt:

1. Let your budget breathe

The first step is to “take stock of” how much money you have to meet all your expenses. Create a list of your income sources and expenses, and then check whether all expenses can fit in your budget. Under no circumstances are you allowed to borrow money; if your income has fallen short, you should cut back on your expenses.

You will have to make do with what is available. You should avoid discretionary expenses. Unless you improve your financial situation, you should prefer a lean budget, which has the scope for only essential expenses.

2. Pull your socks up and build an emergency cushion

On no account can you turn down the need for an emergency cushion? Even if your finances are not in order, you must treat it as your regular and essential expense. Check your budget and see how much money you can salt away every month. It does not have to be 10% or 20%. Even a paltry sum will come in handy. Just be consistent in transferring money to your nest egg.

Link your savings account to your pay account and use an auto debit mode. Every month, the money will be automatically pulled. You do not have to be part of the hassling process of manual money transfer.

With an emergency corpus, you can avoid borrowing money to meet unforeseen expenses. If you fall short of your savings, you can get a loan online but make sure you borrow only the “difference”.

3. Increase your income sources

You will need to improve your income sources if all expenses do not fit in your current budget. Ask your employer for a pay hike. Do not forget that it is not going to be easy despite pouring in a lot of effort to bring the business. Switch to a new job if your current employer is obdurate. There is no point in sticking to a job that does not pay you enough pay to get by.

If you cannot leave your current job, you should try to grab a part-time job or a side gig. There are various online freelance platforms to provide you with a lot of projects. You can complete them before and after office hours. There is no gain without pain, so you will need to sacrifice your sleeping hours to make some money.

You can even get a side gig like walking a dog, babysitting, and lawn making to increase your income. Make sure you sagaciously spend this money. Put that money into your essential expenses and savings.

4. Do not make a big purchase

After being debt-free, you should not immediately plan to make a big purchase. Many people buy a car or apply for a mortgage within a year. This will never work in your favour. Even though your financial condition has improved, you should assess your repaying capacity.

  • Are you absolutely sure that you will not have any problem paying off the debt?
  • Do you have an alternative plan in case your financial situation is turned upside down?

Auto loans and mortgages can be very expensive. Moreover, interest rates you will be charged based on your credit rating. They will certainly be high when your credit history has not been up to scratch. You should carefully examine all these factors to make any decision.

If you are planning to buy a gadget, ask yourself whether you need it. Do not buy if you can manage without it. The next thing you need to look over is whether you will pay for it from your pocket or borrow money.

It makes sense to bear the entire cost of the gadget because a loan will add up the cost due to interest payments. You should try to stash away a chunk of money every month until it becomes sufficient to buy a gadget. In the meantime, you should manage without it.

5.  Improve your credit rating

Your credit score must be good if you want to borrow money at a lower interest rate down the line. You know that you will need to borrow money to buy a car or a house in the future. You will be able to qualify for interest rates if your credit history is up to par. Here are the ways to do up your credit rating:

  • You should take out a credit builder loan. Pay off all payments on time.
  • Keep paying your rent on time.
  • Use your credit card for small purchases and pay off the balance.
  • Keep your credit utilisation ratio low.

To wrap up

You should take a break from taking out a new loan once you have settled all your current debts. Focus on taking control of your spending and building a nest egg. In addition to that, you should keep improving your credit score so you do not struggle to borrow money in the future.

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