Millions of people are consumed by their overwhelming debt. Even suicide rates and mental health issues have climbed because of financial woes. However, it is not a lost cause and it is indeed possible to get out of that debt mountain. Compiled in this article are 8 strategies on how to be debt free.
These tasks are so easy for you to utilize immediately and consequently to see your debt diminish very soon!
As Dave Ramsey stated, “You can’t get out of debt while keeping the same lifestyle that got you there.” Therefore, you need a plan – one that is simple and actually feasible. You want to see results quickly, don’t you? Well, follow the steps outlined in this article and begin to realize what it feels like to be debt free!
#1. Figure Out Where Your Money is Actually Going
This is the time to be brutally honest with yourself regarding your personal finances.
What is your income? What are your monthly expenses? – Every little penny you spend must be accounted for. Everything from your monthly mortgage payment down to that cappuccino you treat yourself to every Saturday morning.
Generate a comprehensive inventory that shows all of your credit card accounts and bills. Include the interest rates for each credit card. This way you can clearly see which one has the highest interest rate and thus, should be the one you pay off first! Stop paying those credit card companies your hard-earned money!
Once you have examined your monthly income and expenses, you will be on your way to becoming more financially settled once again. It is the first step in creating a budget.
#2. Analyze Your Debt
If you are serious about how to be debt free, complete honesty is critical. How much are you spending versus how much are you actually bring in? This will give you an accurate picture of where you are actually in terms of your debt-to-income ratio.
This is not a task to be taken lightly or just merely thought about. You must literally write down your income and expenses and how many months or even years it may take you to pay it off. Calculate your monthly payment required to pay it off. Be realistic with yourself.
#3. Set a Goal
Now you must set a goal – one that is realistic and practical for your needs if you really want to manage your personal finances.
Everyone’s situation is different. Although you want to pay down your debt, you also need to be meeting your basic needs like food and shelter. You may have to start finding ways to save costs with your groceries or cutting back on activities you would usually take part in.
Having a clear goal will help to keep you focused when you have the urge to spend recklessly. Keep your eye on the prize as they say and find ways to be self-disciplined.
#4. Get Assistance With Your Debt
So you have evaluated your financial situation and might be feeling overpowered or even crushed by the numbers. Take a breather!
You do not need to do this alone! Millions of people around the world are in the same predicament. In Canada, you can search on Credit Counselling Canada to find credit counseling and strategies to pay down your debt. In the United States, you can visit NFCC for similar services.
#5. Transfer Your Credit Card Balances
Credit cards are easily attainable and almost everyone has them. However, how you have used your credit card may be the reason you are in a financial dilemma. When it comes down to it, credit card companies are in it for the money. Look at the amount you are currently paying to creditors. Are you making only the minimum payments or missing payments altogether? It is likely that you are also then being hit with extremely high-interest rates.
The companies know that a customer such as you will inevitably be paying them a lot of money. Paying off the balance of your credit card each month may be the ideal situation but not realistic for you at this time. However, in the future, you should be looking at doing just that in order to build your credit score.
Discover those credit cards that you are paying high-interest rates and transfer the balance to a credit card with a low introductory rate. Be careful though – you need to pay off that balance before the offer expires.
#6. Sell Your Old Things
We have all fallen victim to purchasing items that we don’t really need in the first place. Perhaps you have many items that are no longer useful to you. Now is the time to make some additional cash by selling these things, especially if you are serious about how to be debt free.
Start to declutter your home and decide what could be sold. You can choose to have an old-fashioned garage sale or sell your belongings online. There are many online options where you can sell your items. Here are a few popular options:
Varagesale – a great app you can download and sell within your own community
Letgo – a virtual garage sale
Once you have sold your items, put that money directly towards your debt. This is not an opportunity to go out and spend more! It is an opportunity to begin to be debt free.
#7. Find Additional Sources of Income
Selling some of your possessions will make you some money but so will some of your skills or time. Think about additional ways you can make some supplemental income.
- What are you good at?
- Where do your talents lie?
For example, I happen to be quite good at math and advertised in my neighbourhood for tutoring services. Before I knew it, I was tutoring 6-8 hours per week in addition to my day job and was making some significant cash.
If you are serious about paying off your debt, now is the time to update your resume. Start applying for an additional job. Yes, it may mean you are working some long hours but it could just be temporary. Paying off that debt is your main focus!
#8. Begin an Emergency Fund
Unexpected expenses are those expenses that have put many of us in dire circumstances financially.
- The car that breaks down.
- An injury that leaves us unable to work for a period of time.
- A furnace that decided to stop working in winter.
A majority of us live from paycheque to paycheque. Even though we are not oblivious to these unexpected expenses, most of us are not prepared.
The most important way to protect yourself is to start an emergency savings fund and it is one of the main reasons you should be trying to save money.
Put aside a certain amount of money into a separate account that is solely for those unexpected expenses. Set it up with your bank that an amount – even $10 every pay period – is automatically withdrawn from your main account and put aside.
You may not necessarily need that money immediately. There is a certain peace of mind knowing that if you do need it, it is there. If you are lucky enough not to have to use it, it can be used in the future for retirement or your child’s education.
Thinking about debt is generally an unpleasant task and can even affect our health physically and mentally. However, sticking our heads in the sand and not coming to terms with our financial situation is not going to help anything.
Your debt is not going to simply disappear. In fact, it will probably become worse but following the previously mentioned steps can help you become more money wise and even learn how to be debt-free!
Good luck with your new relationship with money.