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How to Get Out of Debt!

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How to Get Out of Debt!

Key insights

“Interest works night and day; in fair weather and in foul. It gnaws at a person’s substance with invisible teeth.” — Henry Ward Beecher

Abu Sa’id al-Khudri reported: The Messenger of Allah, peace and blessings be upon him, entered the mosque one day while a man from the Ansar named Abu Umamah was there. The Prophet said, “O Abu Umamah, what is the matter that I see you sitting in the mosque while it is not time for prayer?” He said, “O Messenger of Allah, I am compelled by anxiety and debts.” The Prophet said, “Shall I not teach you a word to say by which Allah Almighty will relive your worry and complete your debt?” He said, “Of course, O Messenger of Allah.” The Prophet said, “Say in the morning and evening: O Allah, I seek refuge in you from worry and sadness. I seek refuge in you from weakness and laziness. I seek refuge in you from cowardice and miserliness. And I seek refuge in you from being overwhelmed by debt and the tyranny of men.” Source: Sunan Abī Dāwūd 1555

A high percentage of Americans are in debt, and many feel trapped and not able to get out of it. Debt is a horrible structure that has been created in our society, especially with the egregious interest rates charged. We will lay out a simple plan on how to get out of debt, and key steps that need to be done. 

  1. Understand the landscape of your finances, understand how much debt you have, where your debt is concentrated, and then also an idea of how much assets you have.

  2. Always make at least the minimum payments on all your debt, you want to avoid any additional charges that puts you further into debt

  3. If debt is in multiple places, make a plan of tackling the lowest dollar amount of debt first. The lowest amount of debt you have on a credit card, or the smallest student loans you might have, this helps to create a snowball effect where you feel like you are making progress. 

  4. There are no get rich quick schemes, you have to slowly get out of debt, as you are not able to take the risks that other people are able to take. The yolo stock moves only work for 1 out of a million people at best. 

  5. Still able to travel and have fun, but need to do it on a budget. Utilize points or free nights that you get through credit cards and other avenues to have fun but at a low or minimal cost.

Top 5 things that help to take a big chunk out of debt

  1. Bonuses and Tax Refunds

  2. Payout of PTO when switching jobs

  3. Side Business – Anything you are able to do on the side helps to tackle down the balance owed. 

  4. Always pay off debts before getting into the stock market, crypto, and any other investments or even charity donations. Thawban reported: The Messenger of Allah, peace and blessings be upon him, said, “Whoever dies free of these three, arrogance, usurping the spoils, and debt, he will enter Paradise.” Source: Sunan al-Tirmidhī 1572

  5. Borrowing from your 401K or retirement accounts, although not ideal, it will help you to save 18 percent interest or higher, and then you will just pay yourself interest (via the 401k) rather than the bank.

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