Six Steps to Debt Freedom
Feeling overwhelmed and buried by debt can be a terrifying experience. Seeing the light at the end of the tunnel can be hard when you can’t even get your footing. However, if you follow a few steps, you can get control of your debt and dig yourself out.
1. Figure Out How Much You Owe
The first step to getting out of debt is to understand the nature of your debt to begin with. You will need to gather information on all your outstanding debits. If you have been avoiding your debt for a while you may have a bit of searching to do. By obtaining a copy of your credit report you can easily see all of the debts reported by the credit bureau.
Your credit report includes a breakdown of your past debts, current open credit accounts and inquiries on your credit. You should contact all the companies on your report. When reaching out to each company be sure to ask them to verify your debt and see if you can to set up payment plans.
2. Analyze Your Finances
Now that you see how much debt you have against you you can start planning for how to pay it off. Conducting a financial analysis is the first step to creating your plan. To do this, simply spend regularly for a month, or two. Use your debit card to keep a virtual paper trail or be sure to keep receipts from cash purchases. At the end of this time sit down with a copy of your bank statement and receipts and separate your spending into categories (bills, groceries, spending).
Breaking your spending down can help you see where you are overspending. You can also keep an eye out for charges on things you don’t use anymore such as that old gym subscription or magazine subscription. Once you understand where your money goes you can plan a budget around your lifestyle.
3. Organize a Budget
Your budget is the most important part of debt payoff. Now that you can see your debt and your spending you can write out a solid debt payoff plan. There are two popular methods you can base your plan off.
With the debt snowball method, you pay off your debts from smallest balance to largest balance, regardless of interest rates. When you pay your debts from the smallest to largest balance you start to clear those little debts away very quickly. Depending on your situation you might even get rid of an entire debt every month for the first few months. You see progress quickly and you start to feel like you really can do this.
In the debt avalanche method, you pay your debts from highest interest rate to lowest interest rate, regardless of balance.You will pay less in interest if you tackle your debts in this order. Saving money on interest means you will pay your debts off more quickly. This method may seem harder but it can really pay off in the long run.
Regardless of which plan you choose, you need to have a clear, easy to follow plan in place in order for your debt payoff to happen in a swift manner.
4. Search For New Income Streams
So you’ve laid out your finances and you can’t find ways to save enough money to cover your intended loan payments. If this is the case, you may need to work on finding another source of revenue. It is recommended by many to have more than one source of income and picking up a second one is not as difficult as you may think.
If you have the time, a second job can be an option. However, for many a second job is just not conducive to their schedule. In this case, try to find a way to make money that fits your lifestyle. Find something that you enjoy doing that you know people would pay for. There are plenty of options from selling your art projects to seasonal jobs like mowing the grass and shoveling driveways. Every little step towards paying off your debts can help!
5. Create Realistic Goals
When planning for your debt pay off its important to develop a realistic method to do so. You will feel much more successful if you have goals that give you a bit of freedom. Do not put so much money towards debts that you have to scrape by. Debt pay off tends to take years to complete so it isn’t smart to make yourself suffer through the whole endeavor.
The ultimate budget goal should be splitting your money into 3rd (bills 1/3., savings/debt payoff, spending). This gives you the chance to evenly spread your money to the places you need it.
6. Don’t Give Up
It is a long and steady road to debt payoff but you need to stay the course. Stick to your plan and give yourself some slack, you’re doing great. It is important to remember that steady payments help knock off debt and work to raise credit score. Each payment you make, knocks down your total amount due. When you lower your total amount, this makes interest lower because interest is based off amount of debt remaining.
If keeping track of all your debts and budgeting seems overwhelming for you there are plenty of resources available to help you. Using a debt payoff planner to help you along the way can take a huge weight off your shoulders. If navigating your debt seems like it is too much to handle, these planners can help you map your path out. With comprehensive debt interest breakdowns, budgeting assistance, and payoff plan comparisons, a debt payoff planner could be your most useful tool.
January 2nd, 2019
January 2nd, 2019
December 20th, 2018
December 17th, 2018
December 5th, 2018