14 Practical Ways to Finally Get Out of Debt
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Owing money can feel like carrying a heavy burden, akin to a ball and chain. Escaping the grasp of debt, especially when faced with a substantial amount like $10,000 or more, may seem daunting—similar to navigating a deep hole with no apparent way out, particularly in the current uncertain economic climate. Nonetheless, there are ways to break free from the shackles of debt and regain financial control.
With commitment and steadfastness, you have the capability to eliminate your debt. Here are some proven strategies to set you on the path to financial freedom.
1. Face Reality and Assess Your Finances
Burying your head in the proverbial sand is a terrible idea concerning debt. The first step is acknowledging the debt and committing to getting rid of it. Ignoring the problem only makes it worse.
You must take a close look at your income, expenses, and debt. Understanding your financial situation is crucial for creating an effective repayment plan.
2. Create a [Realistic] Budget
Seeing your income and expenditure on an Excel sheet is a great eye-opener to where your money is “leaking.”
If the money going out of your account is more than the money coming in, you’ve already lost the battle to clear your debts. Keenly assess your income and expenses to understand where your money is going and see how you can allocate a specific amount to debt repayment in your budget.
3. Prioritize High-Interest Debts
You may have debts in multiple places (credit cards, pay day loans, student loans, etc.). If that’s the case, you must identify the debts with the highest interest rates and focus on paying them off first.
This saves money in the long run, as the longer you have these debts, the more money you will be paying in additional interest.
4. Snowball Your Debt
Try making a list of all your debts from smallest to largest, regardless of interest rate, and start paying the minimum on all debts and put extra money towards the smallest debt.
This will help you clear the smallest debts, and once those are paid off, roll that payment into the next smallest debt.
5. Cut Unnecessary Expenses
You have to spend down if you want to get out of debt; this is the perfect time to focus only on the most essential needs and cut off on all wants that aren’t pressing.
Temporarily cut non-essential expenses to free up more money for debt repayment. The best way is to evaluate subscriptions, dining out, entertainment, and other discretionary spending.
6. Increase Your Income
Clearing debt while operating on the same income is going to be a little tough. If you can, look for ways to increase your income. Can you get a part-time job or some freelancing gig? Can you declutter your space and sell items you no longer need?
Anything to increase your income will greatly help chop off that $10,000 debt.
7. Negotiate Interest Rates
Is it possible for you to negotiate your interest rates with creditors? If you can, contact them and get a lower interest rate so that more of your payment goes towards the principal.
8. Use Windfalls Wisely
There may be the temptation to use any huge amounts of money that fall onto your laps for other things on your wish list, but remember, the focus is to get out of debt.
Allocate any unexpected windfalls, such as tax refunds or work bonuses, directly toward your debt.
9. Have an Emergency Fund
Sometimes, people get into debt because they don’t have any money to cushion them against emergencies.
While it may seem counterintuitive, having a small emergency fund can prevent you from adding more debt when unexpected expenses arise.
10. Consolidate Your Debt
Paying off one or two loans is better than paying off multiple debts from various places. Consider consolidating high-interest debts into a lower-interest loan, such as a personal loan or a balance transfer credit card.
11. Financial Counseling
Getting financial counseling before getting into debt is good, but it’s never too late to seek financial advice.
Have a financial counselor who can help you create a personalized plan and provide guidance on debt repayment.
12. Automate Payments
It may be harder to let the money go once you have it in your hands. Set up automatic payments such as standing orders to avoid spending temptations.
This ensures you never miss a due date and avoid late fees and additional interest charges.
13. Avoid New Debt
You will never be debt-free if you keep adding more (duh). Commit to not accumulating more debt while working on paying off your current obligations.
This may involve resisting the temptation to use credit cards for non-essential purchases.
14. Stay Disciplined
Discipline will save you when you feel hard-pressed to skip another payment or buy another gadget instead of paying your debt.
Stick to your budget and repayment plan. Consistency is key to paying off debt successfully.
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