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Most people have some form of debt, whether it’s credit cards, student loans, an auto loan, or a mortgage. Sometimes getting rid of your debt can feel like an impossible task, but it’s not. Today we’ll talk about five simple things that will take you closer to being financially free and clear.
- Set Up a Budget
When you make a budget, you’re making a plan for your money. When you create a budget and outline your income and expenses, you’ll ensure you have enough to pay your fixed expenses and find out if you can put aside more for your debt payments. We’ll talk about specific ways to do this in #3.
- Create a Debt Plan
Different from a budget, this plan should list your debts with the balance owed and interest rates. Once you have everything written down, decide which debt you want to pay off first. Many people choose either the debt with the highest interest rate or the one with the lowest balance owed. Whichever you choose, paying off this balance will become your priority. Pay as much as you can on this account while continuing to make the minimum payments on your other debts. Once you’ve paid off your first priority debt, move to another on your list.
Focusing on getting rid of one debt at a time makes the task seem less daunting. You’re also able to see your progress, making it easier for you to stick to the plan.
- Cut Down on Non-Essential Purchases
Everyone likes to treat themselves now and then, but if you’re spending money on things you don’t need, you could be sabotaging yourself. Try cutting back or eliminating unnecessary expenses like subscription services, takeout, alcohol, and trips to the coffee shop. Add the money you would have spent on that latte or subscription box to your monthly payments. You’ll be surprised at how quickly it adds up!
- Ask for Lower Interest Rates
Yes, you can request lower rates! If you have credit card debt, it’s worth calling your credit card company and asking if they’re willing to lower your rate. This may require a little negotiation, but it can pay off big time. Since companies want to keep long-term customers happy, start with the company you’ve been with the longest.
If you have private student loans, you can do the same by refinancing. Refinancing your student loans consolidates your loans into one new loan, resulting in a lower interest rate and lower monthly payments.
- Stop Creating Debt
Adding to your balances while trying to get out of debt is like swimming upstream. Take your credit cards out of your wallet and leave them at home or, if you know you definitely won’t need them, cut them up. By not charging more to your accounts, you’ll save on interest and reduce the amount of time it’ll take to pay everything off.
Remember to take it one step at a time when you’re working toward being debt-free. When you take any action, no matter how small it seems, you’re getting yourself closer to financial freedom and peace of mind.