Thursday, June 24, 2021
HomeMoneyThe definitive guide to quickly (and forever) escape from debt

The definitive guide to quickly (and forever) escape from debt

Debt can always feel overwhelming, like the weight that crushes you. Looking at those numbers, you may feel like you’ll never get out of under them. However, if you really want to learn how to get out of debt, you can do it with a lot of concentration and self-control.

It is not impossible to get out of debt. Like any other big goal, all you need is a plan of action to see where you are and make a plan to get rid of your debts.

Check all debts

The first part of paying off your debts is getting a complete picture of what you owe. Having everything written down will make it a lot easier to create an execution plan. Depending on how much you owe, it might help you realize that it’s not as bad as you originally thought.

Here’s how to start checking your debt:

1. Own debt

Before checking all your debts, take a minute to deal with if you have debts but you want to get away from them.

Forgive yourself for past mistakes, missed payments, or overspending. Accepting how much debt you have in the first place can be painful, but you have to own it.

2. Create a debt tracker

It’s amazing how few people have made trackers to understand total debt. Most of it comes from not wanting to accept the sin of being in debt, but avoiding it can make it nearly impossible to get out of debt.

Open a new Google or Microsoft Excel sheet and list all debts. Start with the creditor’s name, interest rate, total balance, loan term (if any), and the minimum amount required for each payment. This includes student loans, credit cards, and other owed debts.

3. Get your debt number

After creating a debt tracker and following the other steps, see your total payments. This is very important as you will have a starting point and clear goals to achieve.

Prioritizing debt

Not all debts are created equal. It is important to understand that there are different types of debt.

1. Understanding bad debt and good debt

Bad debt usually pays for what you want, not always. There may be emergencies that make the most of your credit card, but it’s often overspending.

There are three main types of bad debt.

  • Credit Card Debt: The average American family owes more than $16,000 on credit cards!
  • Auto Loan Debt: According to CNBC, the average car loan in the US is $30,032!
  • Consumer Loan Debt: Consumer loan debt is not as common as credit card and auto loan debt, but it is still considered bad as interest rates are generally between 10 and 28%.

Good debt is identified as an investment in the future. Here are three common good debt types:

  • Student loan debt
  • Mortgage loan
  • Business loan

2. Determining the debt to pay first

Once you know each debt type and interest rate, you can quickly pay off your debt.

Regardless of your credit card or car loan, focus on paying off bad debts first. Start by paying off your loan first at the highest interest rate.

If you have multiple credit cards with different interest rates, you can focus on those with higher annual interest rates. Removing the card with the highest interest rate can actually save you even more money.

3. Do not pay the minimum amount

The interest rate offsets the payout, so paying the minimum will put you in the hole. Even less than the minimum, you can pay off your debts much faster.

Eliminate obstacles to paying off debts quickly

Creating a debt tracker and prioritizing your plans can be simple, but avoiding the temptation can be difficult.

1. Set up notifications for debt tracking

“If you can’t measure it, you can’t manage it.” -Peter Drucker

It is very important to keep track of your debts in order to pay them off quickly. Just like exercising and measuring your results, you need to keep track of your debts. It starts with a weekly reminder to log in and record your updated number. Has it increased, decreased, or remained the same?

Keeping track of student loan balances regularly can also be very motivating. Whenever you see a decrease in your total debt amount, you can gain tremendous confidence.

Set weekly and monthly goals to help you win in the short run and maintain momentum.

2. Hide Credit Card

If your biggest debt is a credit card, you need to get rid of the temptation and remove it from your wallet.

Some people have taken extreme steps by freezing their credit cards. Why? This will create a block of ice around the card, which requires you to slowly draw chips. This will give you time to think about whether buying the product you want to buy is the best idea.

3. Automate everything

Willpower can be a major downfall in paying debts. By automating your monthly bills, you can make sure your willpower is not involved.

4. Plan ahead

It takes a little sacrifice to get out of debt, but with enough planning it can work.

For example, if you know that a friend’s birthday or family dinner is coming, plan the cost ahead of time. Reduce spending a week before, choose a side job, or do what you need when you need to meet after dinner.

5. Living cheap

The only way to get out of debt is to sacrifice your spending habits. You can find a way to save money each month and apply that amount to your outstanding debt. Here are a few ways you can save money every month.

  • Living with a roommate
  • Instead of eating out, cook dinner and prepare lunch for work.
  • Cut the cable and choose Netflix or Amazon Prime.
  • Take public transport or bike to work

Find the lowest interest rate

The higher the interest rate, the more time it will take to pay off the debt.

If possible, we want to find a way to quickly get out of debt by lowering interest rates. Here’s how to get started.

1. Maintaining a high credit score

Your credit score has a huge impact on your ability to refinance your loan and receive low interest rates. If your credit score is low, you will not be able to refinance your loan. Use the following credit tips to increase and maintain your excellent score.

  • Don’t miss out on payment
  • Do not exceed 30% of your credit limit.
  • Do not sign up for more than one card at a time.
  • Limit difficult inquiries like auto loans and new credit cards
  • Frequent monitoring with free credit tracking software

2. Finding Balance Transfer Offers

Start by opening a free account at credit.com. Credit.com gives you the opportunity to open a free account and see what types of balance transfer offers you can receive. Some of your existing credit cards may already have an offer to transfer your APR balance of 0% or less.

Please check with each credit card provider on how to lower your charges for one-time balance transfer offers.

If you take advantage of this option, you must use a balance transfer, not a cash service. Cash services have huge interest fees (15-25% depending on your credit card) and only aggravate your debt issues.

How to get rid of debt forever

Planning, removing temptations, and getting the lowest interest rate are the first steps to get out of debt.

1. Continuous monitoring and adjustment

Don’t be comfortable if you have a plan. Keep track of your debt repayment plan and make any necessary adjustments when needed.

Monitor your credit score on free sites like CreditKarma. The higher your credit score, the higher your chances of getting a new low-interest loan.

2. Make more money

There are so many ways to save money. Instead of cutting out other coupons or sacrificing for your morning coffee, find a way to make more money!

Think about it… It’s much easier to find a way to earn extra $1,000 per month than to find $1,000 to cut off your budget.

Here are some examples of how to make more money.

Talk to the boss

Talk to your boss about your current salary and/or commission rate. If you are not satisfied or want a change, don’t be afraid to look around different locations. Some of them may even have student loan repayment plans!

Side hustle start

You can coach students on weekends, drive with Uber or take part in paid online surveys. There are countless ways to make money other than 9-5. Now that your plans to pay off your debts are clear, your motivation for finding creative new ways to make money will be higher than ever.

Build an online business

There are so many websites and blogs that monetize ads, affiliates and other online products. Find a niche and get started.

3. Celebrate the victory

Don’t forget to celebrate your victory as you progress through your debt repayment journey. You should always reward yourself for the effort and discipline you need to get out of debt.

You shouldn’t celebrate big enough to increase your debt, but consider a little reward for motivation.

4. Setting new financial goals

Eventually, you can pay off your debts through planning and these steps. If you have done so, celebrate your monumental achievements, but don’t stop there.

Now you can focus on earning wealth and increasing your net worth. You can set new goals by setting new financial goals. Here’s how to set your financial goals and actually achieve them.

These can be anything now you haven’t paid off your debts! Think about where you want to travel, buy your first home, or save for future retirement. As before, make sure your goals are specific, measurable, and achievable.

conclusion

Congratulations. Now you can make a plan to pay off your debts.

It’s not always easy if you want to get out of debt quickly. As with big goals, there will be sacrifices, challenges, and problems to overcome.

Additional tips to get out of debt

Featured photo credit: Pepi Stojanovski via unsplash.com

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