Are you struggle with overwhelming debt? Don’t fret, you’re not alone. Statistics say that 80% of American households are struggling with some sort of debt, whether its outstanding credit cards, auto or personal loans, student debt or little of all the above.
However, just because you have debt, no matter how much, doesn’t mean you have to carry it with you forever. In fact, if you follow this guide to paying off debt, you’ll find yourself free from yout financial burdens and on to a better, more financially-stable life.
Create A Budget
The most important step to paying off debt is to create a budget. By creating a budget, you divide your money into monthly obligations like bills, food, gas and groceries. If you have disposable income leftover, this money goes towards paying off your debts. Once the money in your budget is gone, you can’t spend anymore money until the following month. Keep using a budget until all of your debts get paid to keep you on track.
Trimming The Financial Fat
Once you’ve created a budget, its time to trim the unnecessary financial fat from your life. The endless magazine subscriptions you get in the mail but never read, cancel them. If you’re going to Starbucks every morning to pick up a cup of coffee, brew it at home. Other ways you can trim the financial fat from your life include:
• Take your own lunch to work
• Cook dinner at home instead of ordering out
• Downgrade your cable or internet package
• Use coupons when you buy groceries
While these habits might seem inexpensive and miniscule in the moment, it all adds up over time. Plus, the more fat you can trim off your finances, the more money you can put towards paying off your debt. Once you start paying off your debt, you’ll find yourself eager to find new ways of cutting down expenses.
So you’ve trimmed the fat out of your life and created a budget, now what? Now its time to increase your income. The best way to increase your income is to put in more hours at work or get a second job. However, this isn’t always an option for some people. If you can’t get a second job and there’s no extra hours to put in at work, there’s other ways you can increase your income. Some of these options include:
• Take up babysitting, dog walking, or mowing lawns
• Become a tutor in your area of expertise
• Recycle metal, cans or bottles
• Rake leaves or pull weeds for the elderly
• Have a garage sale
• Sell your unwanted items
Once you’ve exhausted all the ways you can bring in extra money, use that money to pay down your debts. All of this extra money, combined with the disposable money you have outside of your budget, you’ll put a significant dent in your overall debt.
Don’t Add Extra Debt
One of the biggest mistakes people make when they’re paying off their debt is acquiring new debt in the process. That pre-approval in the mail might have the best interest rate in the world, but you don’t need it when you’re already swimming in debt. Additionally, as long as that old beater of a car still drives, you don’t need to get that car loan for a shiny new set of wheels.
Don’t Swindle Your Bonus
If you get a bonus from your work each year, it’s tempting to spend it on something you really want. Instead, you should take that bonus and apply it to your outstanding debt. What’s more tempting than financial freedom, right? More so, the money you get each year for the holidays and birthdays could take a large chunk out of what you owe too.
Lower Your Interest Rates
You might find it surprising, but you can negotiate with your credit card companies for a lower interest rate. If you make your payments on time each month, even if its only the minimum, some companies will give you a lower interest rate if you simply call and ask. Worse case scenario, some companies will tell you no, and you can move on to work with a different company.
If you have a high interest rate debt that you can’t seem to pay off, look into a balance transfer. This allows you to transfer the debt from the high interest card to another card with a lower interest rate. In some cases, you can lock in a 0-percent APR for up to a year. This could potentially save you hundreds in interest charges alone. Keep in mind, you might have to pay a transfer fee for doing so.
Avalanche Your Debt
The best way to pay off your existing debt is through the avalanche method. With this method, you’re going to pay the minimum amount on each of your debts except the one with highest interest rate. For the high interest rate debt, throw as much money as you can afford at this debt until its paid off.
Once its paid off, do the same thing with the second highest interest debt. Continue using this method until all of your debts get paid. Essentially, your rolling the money you would’ve paid on your previous debt to the next one in line, hence to the term avalanche.
Debt consolidation makes a great option for people suffering with a large amount of debts. When you owe multiple companies, its difficult to keep track of all the payments you must send out each month. In addition, you end up paying hundreds towards interest when funds are so limited that you can only make the minimum payment.
With debt consolidation, you’ll receive a loan to cover all the past debts that you owe. This allows you to make only one payment per month on the loan, and you’ll get a lower interest rate than most of your current debts. This allows you to pay your debts in a way that’s easy and hassle free, and you’ll have a monthly payment that’s affordable for you.
Celebrate Your Victories
Paying off your debt requires a lot of hard work, sacrifice, and dedication. With everything you put into fixing your financial troubles, it’s hard to find the motivation to stick with it. A great way to inspire yourself and keep up momentum is to reward yourself for your own victories.
Each time you pay off a debt, treat yourself to something you’ve deprived yourself from. This could include a new pair of shoes you seen at the mall, or a cup of your favorite coffee from the local coffee shop.
While paying off your debt takes a lot of hard-work and dedication, it’s well worth the effort. Once you’ve finally freed yourself from your financial woes, you can focus on building a better financial future.