The road to debt freedom can be tough. But remember, your future is worth the work you put in today. There are a lot of things you can do to get out of debt fast. But without the right plan, it’s hard to make progress and even harder to keep yourself from going back into debt later.
One of the quickest way to be debt-free is committing to filing bankruptcy, but you need to understand your options and the consequences that come with having a bankruptcy on your credit report. Read to the end to find out everything you need to know about bankruptcy.
Learn Budgeting
Your first step to be debt free is to build a budget to pay off existing debts. It’s easy to lose control of debt when you’re not tracking your spending. Budgeting is a big part of staying out of debt, but it can also help you pay off debt faster.
You need to create a budget that gives you a clear idea of how you spend and save your money. If you have excess credit card debt, budgeting can give you valuable insight into where your income goes each month. Use a budgeting spreadsheet can also help track your spending habit for a month and to see where you can allocate more income toward repaying debt.
- You can try to also incorporate a 50/30/20 budget: Meaning, you split your income into three categories: 50% goes toward your needs, 30% goes toward “wants” and 20% goes toward savings and debt repayment.
- Zero-based budget: At the end of each month, your income minus your expenses should equal zero. This helps you account for every dollar earned, including debt repayment and savings.
- Envelope budget: Categorize your spending into virtual “envelopes,” such as food, utilities and housing. Allocate your budget at the beginning of the month to cut down on superfluous spending.
- Minimalist lifestyle: Cut regular but unnecessary expenses, such as eating out or gratuitous shopping trips, to maximize savings. Dedicate any remaining income to debt repayment.
You can also utilize an online debt payoff calculator to determine how much you should allocate toward your debt in order to pay it off within a certain time. This gives you a clearer image of how much you’ll pay every month and how much you’ll pay in interest in the long run. You can customize your strategy to pay off debt based on how much you can put aside each month.
You may able to reduce the cost of your borrowing, this will make repaying your debts cheaper and free up more money to pay off what you already owe.
Credit cards
You could also look at your credit card statement to see what you’re being charged in interest. Reducing the interest rate and amount owing on your credit cards will also help reduce your debt.If your credit score is high enough, you can make significant savings by transferring your debt onto a balance transfer card with a 0% credit period. This will enable you to focus on repaying your debt without interest charges boosting it further. You may have to pay a fee, but the savings normally outweigh this cost.
If you’ve previously missed credit card payments or have a lower credit score, you may not be eligible for a 0% balance transfer card. However, you may still be able to find a card with a lower rate than your current one.
With any balance transfer card, it’s important to remember that its purpose is debt repayment - that means you need to be disciplined and not purchase anything with the new card.
You should also look at how long your interest-free or discount period lasts and ensure you repay your debt before it runs out. Otherwise, you’ll start paying interest again, and simply paying the card’s minimum repayment is unlikely to be enough to clear your debt.
Loans
If you have a fixed rate secured or unsecured loan, you’ll probably have to pay to move to a cheaper option. However, it’s always worth checking.Work out whether you could save money by moving your loan and then ask your lender how many monthly payments you have left and the outstanding balance. You should also check whether there are any penalties if you repay the loan early.
Increase your debt repayments
Stop taking on new debt
Mortgages
A mortgage is likely to be your most considerable monthly expense, so if you can save money on your mortgage, it could make a big difference to the amount of money you have to tackle other debts.If you’re currently on a standard variable rate mortgage, you could be paying more than you need, and remortgaging could be a simple way to reduce your monthly bills.
Remortgaging with your existing lender can be a good option because you don’t have all the costs of switching to another bank or building society.
An independent mortgage adviser will be able to explain your options and help you work out the exact cost of moving your mortgage. Remember, remortgaging is only worthwhile if it saves you money.
In all likelihood, you won’t be able to save money by remortgaging if you are on a fixed deal. This is because the penalty fees are likely to outweigh the benefits of a better rate.
However, you should still make a note in your diary so that you’re ready when your rate does run out. Then you can switch straight away and start making savings.
Make a grocery shopping list.
One of the easiest ways to save money at the grocery store is to make a list. Whether you like to write down your grocery needs on a piece of paper or you prefer using a grocery list app.
But here’s the thing about making a list: You have to stick to it. Especially if you're shopping with kids.
Once you’re debt-free: Learn how to stay out of debt
Becoming debt-free is a difficult task, so it’s important to build better habits going forward so you don’t find yourself in the same situation again. Stay out of debt by monitoring your budget, building your savings and working on increasing your income.It’s important that you don’t sacrifice your emergency savings for debt repayment. You should always be saving at least some money in an emergency fund. That way, when you’re hit with a big, unexpected expense, you don’t need to resort to taking out debt again.
Many professionals advise that you have between three and six months’ worth of expenses saved up in case of emergency. If that seems like a lot, start small; create your emergency fund by saving up one week’s worth of expenses, then one month, and build from there. Here are a few traps to avoid as you step your way to debt freedom:
