Nobody likes debt. However, it’s a reality for most adults. Like many other people, you may be focusing on saving money and becoming debt-free. However, eliminating debt does not happen overnight, but’s not impossible to build a debt-free future.
Read more for some tips on how to start taking control of your finances and making your dream of a debt-free future come true.
1. Create A Budget
Building a budget and strictly sticking to it is key to any financial planning, but even more so when you’re paying off your debt and want to live a debt-free future. Experts often recommend the 50-30-20 budget. Reserve 50% of your income for essential expenses such as your housing and living expenses, allocate 30% for your wants and dedicate the remaining 20% for paying debts and savings.
If you want to pay your debts faster, you can use the 30% to make extra debts payments. Not only can it help you become debt-free but it also helps you in saving on interest. Once you have a budget, make sure to stick to it and closely monitor your progress. You can also use digital tools to make things easier to track.
2. Consider Debt Consolidation
If you have too many debts to pay, you may be able to combine these debts into a single new loan called a debt consolidation loan. In general, you’ll need fair or good credit to get a consolidation loan. However, some lenders can also offer bad credit debt consolidation loans.
The best debt consolidation loan can provide you lower Annual Percentage Rate (APR) on your debt, which helps you save money on interest and pay off your debt faster. However, you should not incur extra debt while you pay off your consolidation loan.
3. Implement A Debt Payoff Strategy
In terms of paying off your debt, there are two strategies you can adopt:
- Debt Avalanche: This method means you start paying off your highest-interest debt first while still paying the minimum for all other debts. Then, you move to the next highest-interest debt. This allows you to save on interest over time by first knowing your higher-interest debts.
- Debt Snowball: This method is the exact opposite of the previous strategy. You start by paying off your smallest debts while still paying the minimum for all other debts. Then you start paying off your next smallest debt. This method gives you a sense of accomplishment that builds over time as you cross off a debt out of your list.
Regardless of which method you choose, the most important thing is to understand which option is suitable for you to reach your goal and be debt-free.
4. Be Mindful On Credit Card Usage
Most people think that using cash can help them avoid debt. It’s true for some people since physical currency helps them avoid making impulse buys, and it makes them feel like they are spending compared to cards that you simply swipe.
That said, a credit card does make things easier such as booking hotel reservations, traveling, or renting a car. So, if you want to opt for a credit card, make sure to be mindful of how you use it.
Make it a strict rule to pay off each of your purchases as soon as possible. Don’t wait for your monthly bill to come. This can help you to think about how much money you have before you swipe. Also, don’t be afraid to use your credit cards to your advantage for cashback, discounts, and rewards points.
5. Do Not Take On More Debts
You already know the difficulties of paying off your debt. So, don’t take on more debts, if possible. If you continue to spend more than your income, it’ll be tough to build a debt-free future. If you’re thinking of borrowing more money, think and reflect about how it would impact your budget, your existing debt payment, and your ability to save for your future.
6. Hustle With Work
Of course, earning extra income can help you pay off your debt faster. It also helps you in building a sizable savings account that can help stay out of debt in the future.
Whether it’s negotiating a raise with your boss, taking on a part-time job, or starting a small business, think of some ways to start earning more money. You could pay your debt faster with the extra earnings, and you can also put some on your savings. Moreover, you could build large savings for emergency expenses or plans.
Living a debt-free life may seem impossible, but it’s feasible. By following the tips discussed above with a dash of discipline and determination, you can get out of debt sooner than you realize.