Dreaming of having the freedom of being debt-free? Many of us are tired of sending payments to credit card companies each month, and for good reason. It’s incredibly painful sending more and more money each month to creditors and wasting even more of it on interest. Getting debt-free isn’t always easy, but it’s absolutely achievable and a goal worth pursuing.
For many, it’s encouraging at first to make progress on paying off debt. After a while, it can be easy to fall off the wagon, especially if you hit a speed bump such as an unexpected car repair. Some don’t make progress at all, even though they are trying and have a plan in place.
Frustrated? There are tangible steps you can take to becoming debt-free for good. There are steps you can take to significantly improve the odds that you’ll be able to completely pay off your debt and avoid borrowing money again in the future. You can also improve your credit score, making things like mortgages easier to obtain in the future. If you have large amounts of debt, or just want your FICO Score® Range explained (300 – 850 Bad to Excellent), you may want to look into setting up a meeting with a qualified financial advisor.
Budget and Live Within Your Means
You’re consistently going to stay and possibly accumulate even more debt if your expenses exceed your income. A budget is a great tool that will help you dig yourself out and stay on track, ensuring you’re also living within your means.
You can get started by tracking your spending and seeing where your money is actually going. You should also make a list of all income sources that you currently have. After a few weeks of tracking your expenses, you can make a comprehensive budget that funnels every dollar where it should go. Some of your money should be going towards paying off your current debt, savings, or reaching other financial goals such as saving for a down payment on a home.
You should also leave a little wiggle room for unexpected expenses such as gifts, car registrations, or other irregular items. Inevitably, something will usually come up each month that wasn’t in your original budget.
If you’ve created your budget and realize that your expenses are never going to match your income, you may need to reassess and make some cuts, or you may need to look into ways to increase your income. For example, if you’re renting you may need to look into a cheaper rental property, consider getting a roommate or downgrade your current vehicle.
Sometimes drastic changes must be made in order to truly work your way out of debt. It’s not fun or glamorous, but you can’t rely on credit forever to make up for lack of cash funds. Make the sacrifices now to get debt free so you can enjoy more time and freedom later.
Pledge to Stop Borrowing Money
Being on a budget isn’t always fun, but resist the temptation to “break free” from your budget and splurge. No debt amount is insurmountable, even if you’re only putting a few dollars towards your debt each month.
Going over your budget puts you right back where you were before – in the vicious debt cycle that you’re trying to escape.
Don’t make your debt problems even worse by continuing to borrow more and more money. You’ll only accumulate more interest and need to budget even more the next month.
Change your mindset that any and all debt is unacceptable for any circumstance. There are a few exceptions that some financial planners will concede to as being “good” debt, such as a home mortgage on a home you can reasonably afford. Make a promise to yourself that you won’t make purchases you cannot afford and that you’ll get yourself out of debt for good.
Additionally, making a commitment to be debt-free doesn’t necessarily mean you need to stop using credit cards altogether Using a credit card helps you build credit and can even earn you rewards. However, you should never put more than what you can pay off each month on the credit card so you can avoid incurring any interest. If you can’t use credit cards responsibly – don’t use them!
Have an Emergency Fund in Place
Even with the most careful and practical budget, financial emergencies are going to happen. If you don’t have cash on hand to cover these emergencies, it can be detrimental to your efforts to pay off your debt. Things are going to break and people get sick, it happens. If you’re prepared, you can avoid accumulating more debt when these situations pop up.
If you start an emergency fund while you work on paying off your debt, you can be prepared for these occasions. Some financial planners advise starting an emergency fund before you even begin to pay off your debt. Once you’ve paid off your debt, it’s also advisable to build up a larger emergency fund. Experts recommend having three to six months of living expenses in this fund. This will help protect you from a serious medical issue or an unexpected job loss.
Get Serious About Your Debt
After you have paid off your consumer debt you can begin tackling larger debts such as student loans and or a mortgage. A basic way to get started on aggressively paying off your debt is to begin paying extra towards just one debt and make the minimum payments on the rest.
You can choose one with the lowest balance or one with the highest interest rate. One you’ve paid off that debt, move on to the next one. If at any time you get extra cash, such as a tax refund, use it to pay off debt even faster!
Staying debt free isn’t easy, but it’s within reach. If you’re serious about having financial freedom, you can do it with time, discipline, and patience.