Getting out of debt is something you can do for yourself with the right tools and motivation. Debt is known to be the primary reason for financial struggle and getting out of it involves systematic planning, making the right financial decisions, and re-evaluating your relationship with money.
If you already have debt then probably one of your biggest monthly expenses is dealing with that debt. The first step to getting rid of debt is to accept and take full responsibility for the situation and decide to work on it with discipline and dedication.
Here are some tips that can help you become debt-free over time.
Make a Debt Repayment Plan
Some debts are interest-free while other types of debts come at a very high price. For example, borrowing money from a friend comes with no interest. But when you borrow money from a financial institution, it always comes at a price, in the form of interest rates. The lower your credit score, the higher the interest rates. Therefore, it’s imperative that you start with categorising your debts ranging from zero-interest to high-interest debts. Start with paying off the ones with a higher rate of interest first. See if you can save a small amount every month and pre-close to avoid paying interest for the entire tenure. Once you finish paying these, you can pay off debts with lower interest.
Negotiate for a Lower Interest Rate
Call your creditors to negotiate a lower interest rate. You'll be surprised how many creditors will be willing to reduce your interest rate based on your payment history and account standing. If you have maintained a good relationship for a few years, you may be in a much better position to qualify for a lower interest rate. This can help you save some money on interest payments as you pay down that debt over a period of time.
Follow the 50/30/20 Budget
Keep essential expenses, like housing & utilities, to 50% of your income. Then allocate 30% for wants, and use 20% for savings and debt pay-down. Since you’re focused on paying off your debt, you may decide to use money from your wants category to make extra debt payments. That will wipe out debt faster and help you save on interest. Once you have your budget, track your progress. You can always revise your budget as necessary.
Read more about the 50/30/20 budget rule here.
Find Extra Sources of Income
Consider any skills you have, that you can offer to earn extra cash. If taking a second job sounds exhausting, make it a short-term stint to earn enough for a few extra payments toward debt. Here are 5 side hustles that can make you some extra money.
Change Your Spending Habits
Avoid overspending on things that aren’t necessary. If you find yourself falling behind on savings goals, buying items out of boredom, and breaking your own spending rules, you might be overspending. But you can break the cycle by building a good budget and working to build healthy financial habits.
Say No to Credit Cards
When you’re struggling to pay off debts, it can be very tempting to swipe your credit card to make purchases. Most people in debt max out their credit cards due to a shortage of funds and then repay only the minimum amount due every month. Always pay more than the minimum amount due to bring down your credit card debt and stop using your credit card to make purchases.
There you have it—6 ways to get out of debt and make your way into your debt-free journey. Try a few of these tips and see if they work for you. When you hit a wall and feel like you’ll never figure out how to get out of debt, be persistent, and continue working on the plan! Over time, your dedication will pay off!
