What would you do if you woke up tomorrow and found out that you had a few hundred or a few thousand extra dollars sitting in your bank account? How would your life change if you knew that extra money was coming in each and every month?
For many Americans, getting that kind of a raise is a total pipe dream. But with Americans spending roughly a third of their income on servicing debts, one easy way to improve your financial standing is to live debt-free.
If you want to know how to live debt-free and you’re looking for a repayment plan, you’ve come to the right place. We’re about to tell you how you can start living debt-free in just seven steps. Sound good? Keep reading.
1. Figure Out How Much Debt You Have
How much money are you spending on interest each month? What’s the principal owed on the accounts? How long will it take you to bring those balances down to zero while making minimum payments?
You wouldn’t solve a problem at work without taking the time to learn the scope of the issue. In fact, the age-old advice to avoid “putting the cart before the horse” was invented precisely because it’s possible to make things worse if you jump to conclusions and rush the fact-finding process. That’s why a solid debt repayment strategy starts with sitting down and wrapping your head around the numbers.
2. Find a Debt Repayment Method That Works for You
When push comes to shove, it’s easy to start putting debt repayment money towards other things when you don’t have a set of financial rules in place. In the world of personal finance, there are two popular debt repayment methods that experts often recommend.
With the debt snowball strategy, you make minimum payments on your debts while paying off your smallest debts and gradually tackling your larger accounts as you keep bringing balances down to zero. However, with the debt avalanche method, you would make your minimum payments while using additional funds to tackle your highest-interest accounts.
The debt avalanche method will save you money. But the debt snowball method will help you gather momentum. There isn’t necessarily a right or wrong approach here, but these are frameworks that you can use to find a repayment structure that works for you.
3. Automate Your Debt Repayments as Much as Possible
Sometimes even the best plans can go sideways when you introduce a human element to them. It’s easy to forget about payments or to get tempted to send money to other accounts when you’re watching $1,000 leave your account every month like clockwork.
When money is tight, it might make sense to take out money manually so that you can avoid getting hit with NSFs. But the risk of relying on your memory and your ability to work a calendar is that a missed payment can have serious implications on your credit.
One way that you can guarantee that debts are being repaid without much effort is by authorizing recurring payments and using automated methods to save.
4. Look for Ways to Lower Your Interest Rates
It’s possible to do everything right from a financial standpoint while still failing to make much of a dent in the debt. Why? Because interest rates can prevent you from making progress on the principal. And if you’ve taken out a payday loan or some other form of high-interest debt, your minimum payments could very well be primarily going towards interest.
A debt consolidation loan can help you pool all of your debts together into a single payment owed to a single creditor at an overall lower interest rate. But you can also use a zero-balance transfer card, take out a HELOC, or negotiate with your creditors to combine your debts, lower your interest, and get out of debt a little faster. Don’t be afraid to get creative.
5. Free up Additional Money to Put Towards the Debt
Do you have some savings that could be added to your debt repayment? Is it normal for your job to give out bonuses like candy during the holiday season? You might not be expecting this money or budgeting for it, but it can nonetheless be used as a way to pay down your debts a little faster -and the best part is that you don’t even have to look too hard to find opportunities to free up cash.
You can downgrade some of your monthly subscriptions or take advantage of points programs and sales to spend less on groceries. It might not seem like much at the moment, but when it comes to debt repayment, every dollar counts.
6. Supercharge Your Debt Repayment Plan by Making More Money
In all the talk about the importance of being debt-free and enjoying the freedom that comes with that, it’s important to understand that repaying debt doesn’t have to look like eating ramen and cutting your budget to the bone. You can also just make more money.
According to Zapier, 34 percent of Americans have a side hustle. And even if you don’t have a car that lets you drive for Uber, you can still bring in additional income through jobs like freelance writing or transcription. In this regard, even a couple of hundred extra dollars a month can knock over a thousand dollars off of your debt balance.
7. Create a Financial Plan Going Forward
Once the credit card is all paid up and debts are down to zero, it’s important to do a financial audit. You don’t want to do the work of going debt-free only to end up in the same place as before.
Were the credit cards the issue? Did you have a medical crisis or a sudden job loss?
Taking a moment to learn from the past can help you avoid making similar mistakes in the future.
You Might Be Able to Live Debt-Free in Less Time Than You Think
If you’ve been dealing with debt, then you already know the feeling that comes with not having financial freedom and being unable to put more money towards the things you want to invest in. The good news is that once you start tackling those outstanding bills, you might be surprised at how soon you’ll be able to live debt-free.
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