Shockingly, recent studies show that over 70% of Americans don’t pay off their debts within their lifetimes. Sometimes, that means your loved ones or co-signers will be forced to take on the burden of your debt after your death.
This isn’t a situation anyone wants to be in, or put someone else in.
However, we understand that sometimes, it can feel impossible to become debt free. Too many people end up getting in a vicious cycle of bills and expenses that forces them to take on even more debt.
This post shows you how to break that cycle. Read on for 8 essential and practical steps you can start taking today to become debt free.
1. Scrutinize Your Budget
Step one to becoming debt free?
Knowing what you owe, when you owe it — and what you can live without.
Examine your past bank and credit card statements, keeping a sharp eye out for extraneous spending.
Be honest with yourself: do you really need to say yes to every happy hour invitation? Are you still paying monthly fees for services you no longer use?
Categorize your expenses into sections like “utilities,” “student loan payment,” and “grocery money.”
Remember: budgeting isn’t about denying yourself. Setting up a spending plan helps you to avoid unexpected expenses that can destroy your finances.
To that end…
2. Create an Emergency Fund
One of the most important steps you can take towards becoming debt free? Avoiding taking on more debt.
Of course, sudden expenses like medical bills, household emergencies, or even special occasions can kill your finances.
Start preparing for these situations before they happen by setting up an emergency fund. Don’t worry if it takes you time to build up — it’s just as important that you get into the habit of saving.
A good way to ensure you save? Set up an automatic monthly savings transfer of an affordable percentage of your paycheck.
That way, you won’t be tempted to touch the money.
3. Focus on High-Interest Debt
There’s a strategy to paying down debt: get rid of the high-interest debts as quickly as possible.
Sometimes, this will mean making more than your minimum payment each month. However, the sacrifice of a few nights out or unnecessary expenses will be well worth it.
Paying off high-interest debt first is one of the most crucial ways you can “break the cycle” of debt.
4. Put Down Your Credit Cards
When you’re in debt, it can be tempting to keep using your credit cards to stay afloat.
However, you’re only going to end up owing more — and paying a higher interest rate. If possible, stop using your credit cards as soon as possible. Instead, use debit cards or even cash to make purchases.
To avoid temptation, take them out of your wallet and leave them at home when you shop.
5. Cut One Thing
Let’s be honest: one of the biggest reasons people avoid paying off debt is because they don’t want to have to make huge changes to their lifestyle.
To stay motivated, it’s fine to reward yourself (within reason) when you hit a repayment milestone. In fact, doing so will often encourage you to continue to stick with your budget and long-term plan.
However, in order to be able to reward yourself, you’re going to have to make some sacrifices.
For those with an already-tight budget, this can feel tough.
When you’re just starting out, make promise to yourself to cut just one extra expense from your budget — no matter how small. Doing this is much more manageable — and realistic — than forbidding yourself from eating out until all your debts are paid off.
That extra-large latte you “can’t live without?” Trust us, you can.
6. Consider Transferring Your Balance
As stated, it’s the credit cards that carry high interest rates that are most often responsible for keeping you locked in a cycle of debt.
If possible, see if you can transfer those high-interest balances to another account.
Be sure to continue to make your minimum payments, and pay down as much as you can during the introductory interest rate period. This way, you won’t have to pay as much in fees and high interest rates.
Remember: there’s often a lot of strategy involved in becoming debt free.
7. Always Make Minimum Payments
We know that having “one more bill” every month is frustrating.
You know what’s even more frustrating?
Being hit with high late fees and interest rates because you didn’t make the minimum payment on your credit card last month.
If you can, try to make these payments before the closing date — not the payment date — on the card. That way, you’ll boost your credit score and your statement will show that you have a zero balance due.
8. Pad Your Income
You can use what you’re good at to help you get out of debt — and you might even end up enjoying the process.
Have tons of clothing in your closet (perhaps part of the reason you’re in debt?) Sell it on websites like TheRealReal or even set up an Etsy shop to unload your extra stuff.
Dedicate the majority of what you earn to paying down your debt.
Get One Step Closer to Being Debt Free Today
Thanks to this post, you now have 8 possible solutions to help you reduce your debt and regain control of your finances.
However, even if you put these tips into practice, you may still need assistance to become completely debt free.
That’s where we come in.
Don’t let your debt take control of your life and prevent you from achieving your dreams. Instead, start getting proactive by educating yourself and restructuring your budget today.