Struggling with your finances? Can’t figure out a way to get rid of debt? You’re not alone.
Today, the more than half of the American population have debt. About 81.5% of millennials, 79.9% of the Gen X generation, and 80.9% of baby boomers are in debt.
But if you look closely, those who have a plan on paying off their debt scored 18.1% higher on the satisfaction scale.
This means that even though you’re in debt right now, having a simple plan can increase the quality of your life. But of course, being debt free leads to more satisfaction.
So how do you take the first steps of paying off all your debts?
Read on to find out what steps you can take right now to get out of debt.
Get a Credit Report
Before forming a plan to be debt free, you have to first know where you stand. Getting a credit report helps you assess your current debts, loans, and other details.
You may request a free credit report from each of the three credit reporting agencies every year. Contact Equifax, TransUnion, and Experian at different times throughout the year. This way, you can keep track of your credit report three times a year.
During checking, make sure to check if your personal information is correct as well.
Checking your credit report doesn’t only let you analyze your debt, it also shows any activity. It should show accurate data about your financial accounts.
You’ll also see if there are any fraudulent accounts you didn’t open yourself. If that’s the case, submit a report to the agency right away so that they can take it down from your credit history.
It will not only bring down your credit score, it will also add to your mountain of debts. It’s best that you take care of it as soon as you spot it.
Build an Emergency Savings Fund
If you don’t have emergency savings yet, start now. Set a goal like $1,000 before proceeding to your plan for being debt free.
This might seem counterproductive, but this will prepare you for emergency expenses. Medical bills, home repairs, and car repairs might derail you from your payment plans. Having a financial cushion ensures that you won’t lose your momentum.
There are some people who would give up after an emergency happens that messes up their payment plan. There’s also some associated guilt with stopping debt repayment to prioritize the emergency. In these cases, it’s better to have a safety net that gives you the freedom to expect unplanned expenses.
It will also prevent you from getting into more debt. A big emergency might require you to take out another loan to get through it. But if you have some savings, you can focus on repayment without incurring more debt.
When you do use it, build it up again while paying the minimum monthly payment for your debts.
Prioritize Paying Off Debt with Higher Interest Rates
List down all your debts in order from highest interest rates to lowest. Once you’ve done so, you may choose to start paying the number one item on that list as much as you can each month.
In this method, you’re focusing on one debt at a time. You’re eliminating the one that lands you into more debt first. When you’re done paying the first one, start paying the second item the same amount you’ve been paying every month.
Over time, you’ll find that you will have saved more money this way. This will also give you the momentum to get going. As each item disappears from the list, you will have more drive to see through your plan to become debt free.
But don’t forget to pay all your other bills! Only spend what’s left after taking out the necessities.
Create a Budget and See Where You Can Save
Making a budget gives you an idea where your money needs to go each month. You can create a simple budget on paper or on your notes app. But to have a better understanding of your spending habits, it’s a good idea to create categories.
At the least, you’ll have five categories: Bills, Food, Transportation, and Debt. Depending on your living arrangements, you may have to add Rent. Then, set a spending limit on each category.
Next, gather all your bills and figure out how much you’ve been spending on each one every month. Does your average electric bill exceed the limit? Think of ways you can save on it.
Do you spend too much on food? You may be eating out too often. Consider making your lunch at home and bringing it to work.
You may also consider investing in something that will help you save more. Take a slow cooker, for example. It solves any time issues you may have that prevents you from cooking at home.
At the end of it all, make sure your budget doesn’t exceed your income. If it does, you may have to adjust your lifestyle or find another source of income.
Give Up the Luxuries
Giving up the luxuries in life means staying in every Friday night and taking a sandwich to work every day.
Food is essential, but there are certain items that you can consider a luxury rather than a necessity. Having your nails done is also a luxury – one that you can do without. You may also have to forego buying new items when your old ones still work.
Add up all your spending on these activities and apply it to your debt instead.
If you want to be debt free as soon as possible, downsizing now is worth it. This is only temporary as you won’t have to do this for the rest of your life provided that you don’t incur any more debts.
Sell Any Extras in Your Life
If you’re serious about being debt free, start by assessing your home and your things. Some have found that they didn’t actually need a big house or a second car. Others also thought that having five pairs of shoes is enough.
This may also be the same for you. Look around you and see which items you can sell. You can sell them to your friends or to strangers on online selling sites.
When you’ve sold what you can, put the money towards your debt. The next time you want these items, make sure you have the cash to pay for them. Don’t put them on your card, no matter how tempting the offer might be, which brings us to the next tip.
Use Cash and Coupons
Cutting your cards may be over the top, as there may come a time when you need them. But at the least, store them away and don’t keep them in your wallet.
People tend to spend more when they can’t exactly see how much they’re spending. It’s a better idea to instead start carrying cash and using it to pay for everything. Parting with cash is harder and it makes you think twice before you buy something.
Another tip is to take advantage of coupons and BOGO deals. Not only do they help you to save more, they also set a good habit of thinking twice before spending. After paying off all your debt, you need to maintain being debt free by developing good financial habits.
Increase Your Income
To be debt free, try to look at the other side of the equation. If there’s not enough money to budget, that means that there’s not enough coming in.
Find ways to increase your income if what you’re earning isn’t enough. Even if it is, you’ll still benefit from getting more money at the end of the month.
Consider getting a part-time job you can juggle with your current job. There are also online opportunities that will help you manage your time better as you won’t need to commute.
If those are not possible, it may be time to ask for a raise or a promotion. You may also look for another opportunity at another company that will give you a better salary.
When you do get extra income, don’t spend it on things you feel you’re missing out on. Use it towards paying off your debt.
Live Your Own Life
The best piece of advice you need to hear is to not look at other people’s lives. Even if your Facebook friend is going to a grand vacation next month, that doesn’t mean you should, too.
To avoid the need to compare lives, consider getting rid of social media altogether.
Furthermore, you don’t have to live like a hermit. Allow yourself to spend a little bit of money on yourself every now and then. Simple pleasures like a nice meal can go a long way for your motivation to become debt free.
Get Debt Free Today!
With these tips, you can combat debt and get back on stable financial ground. You’ll be able to prioritize the bigger obstacles and, in due time, rebuild your credit.
Before and after becoming debt free, you still have a lot to learn to manage your finances better. Visit our blog and learn new tricks, such as learning how to cut down your expenses!