Want to enjoy debt-free living? Nobody wants a life where they live from paycheck to paycheck and with mounting debt. Here are some tips to help you live a zero-free life.
In this article:
- Acknowledge and Account for Your Debt
- Work on Behaviors Causing Your Debt
- Cut Up Your Credit Cards
- Debt-Free Living Needs a Plan
- Cut Down on Spending
- Pay More Than the Minimum
- Use Balance Transfers
- Create a No-Frills Budget
- Look for Extra Income Sources
- Learn to Say No
How to Get out of Debt: 11 Steps to Debt-Free Living
1. Acknowledge and Account for Your Debt
The first thing you should do before working on a problem is admitting you have a problem. These are signs that your debt is spiraling out of control:
- A debt balance that grows monthly: This means you’ve bitten off more than you can chew.
- Living from paycheck to paycheck: Waiting until the next payday to cover bills is a financial disaster waiting to happen.
- Credit score drop: The larger your debt and the more you utilize your credit line, the lower your score.
- Calls from creditors: If the collectors are calling, it’s a ticking time bomb for your financial situation.
The next thing is to sit down and make a list of the debts you owe, the interest rate, and the minimum payment. Repeat this with all the companies you owe money from until you have everything accounted for.
2. Work on Behaviors Causing Your Debt
Part of accounting for your debt is working on the reasons why you got into debt in the first place. Many people take them on for various reasons, but the most important part is stopping the behavior that got you in that hole.
- If debt happened after getting fired or laid off, build your emergency fund as soon as you get a job.
- Don’t take even more student loans if you’re struggling to pay off yours.
- Spend less than what you make, and don’t use credit cards as “free money.”
- Quit expensive habits like smoking and drinking.
3. Cut Up Your Credit Cards
You don’t get out of debt by subjecting yourself to even more debt. This means not using your credit cards to tide you over the next payday.
Here are some ways you can remove the temptation to use your credit card.
- Have a relative or trusted friend hold them for you.
- Lock your cards in a safe.
- Cancel the credit cards you don’t use.
If you really must use a credit card for something, make sure to pay the full balance every month so you don’t accumulate interest. Otherwise, switch to a debit card or cash so that what you spend gets out immediately after.
4. Debt-Free Living Needs a Plan
You don’t go on a journey without a plan for action. If you want to speed up your way to debt-free living, how you go about it depends on what your problem with debt is.
This is where your debt list comes in handy. For those who have multiple smaller debts, you can try the snowball method to get the momentum going:
- Sort your debt list from the lowest to the highest amount.
- Pay off your cheapest debt in full.
- Make minimum payments for the rest of your debts.
- Repeat the process.
This process frees up your smaller debts, eventually leaving room for you to tackle the big guys. If, on the other hand, the problem with your debt lies with high-interest rates, sort your debts by interest rate and pay off the ones with the highest interest rate first.
5. Cut Down on Spending
By spending less, you can set aside more money to pay off your debt. Here are some ways to cut corners:
- Canceling unnecessary subscriptions like cable
- Cooking at home instead of eating out
- Visiting the library instead of buying new books
- Shopping clothes at thrift stores
Once you’re getting closer to paying off your debt, you can add a bit more discretionary spending to your budget.
6. Pay More Than the Minimum
Most people just make the minimum payment and call it a day. This strategy just gets you even deeper into the black hole, which is the opposite of debt-free living.
Student loans are especially notorious for high-interest rates, and unlike most types of debt, these aren’t forgiven if you file for bankruptcy. The trick with student loans is that to save more money in the long run, you need to pay much more than the minimum amount each month.
The same goes for your credit card and other types of debt. The more you pay, the more you save.
If your credit score is in good standing, you can contact your credit card company to get lower interest rates. The worst thing that could happen is that they say no.
You can also negotiate your bills so you pay less each month. Here are some of the bills you can try negotiating lower rates with:
- Medical bills: Call the hospital and see if you can get a lower bill if you pay the entire balance in full.
- Car insurance: Some give discounts off the bat just so you’d keep your insurance.
- Rent: If you have a good standing as a renter and plan on staying in the long-term, call your landlord once your lease ends to get a good deal.
8. Use Balance Transfers
If the credit card company refuses to lower your interest rates, balance transfers are something to consider looking into.
What are balance transfers? This refers to when you transfer the debt you’ve accumulated on a credit card (typically with a high-interest rate) into a credit card with a lower interest rate.
Some card companies allow you to transfer a balance with low or even zero interest rates for a certain amount of time. It may not chip off your debt, but it can buy you more time to pay it off later.
9. Create a No-Frills Budget
Track your income and expenses so you know how your cash flows every month. Next, trim out all the unnecessary expenses you could live without.
Be ruthless about this process. Ask yourself if you really couldn’t live without your daily trip to the coffee shop or that hefty smartphone bill.
Make sure to stick with your budget so you have more money to pay your debt.
10. Look for Extra Income Sources
Find ways to earn extra income to pay off your debt faster. To do this, you have several options at your disposal.
- Take stock of your skills and advertise them online.
- Sell the things you don’t need online or at a garage sale.
- Get a side hustle while also working full-time.
If you earn extra money from bonuses or tax refunds, put the money toward your debt payments.
11. Learn to Say No
Saying no to things that cost money saves you from debt. Nobody likes admitting they can’t go to a social situation because they’re deep in debt, but the short-term pain is worth the long-term gains.
The road to debt-free living isn’t a piece of cake, make no mistake about it. You may be tempted to slip into old habits, but the only way to move is forward to a zero-debt life.
How much debt do you have, and what’s your game plan? Share your thoughts in the comments section below.
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