On average, Americans have around $38,000 of debt that isn’t a mortgage. Credit cards, car loans, and student loans have a financial grip on most people today.
Debt isn’t inherently negative, but so many of us struggle with the financial literacy and dedication to manage it properly.
Struggling to see a path to financial freedom? Truly wondering how to get rid of debt for once and for all? You’re in luck.
It won’t necessarily be easy and it may take time, but it is possible. Keep reading below for seven steps that anyone can follow to make significant progress in paying off debt.
1. Be Honest About Your Situation
Debt is scary and often considered taboo in today’s society. Unfortunately, this leads to people simply ignoring debt they may have.
Turning a blind eye to debt for any length of time can wreak havoc on your financial well-being.
So step one? Understand where you stand and truly how much debt you have. Grab a notebook or Excel spreadsheet and list out each debt you have.
Once you calculate your total debt amount, compare it to your income. This will give you a global perspective on your situation.
2. Learn to Budget
We hope you didn’t go put your head in the sand after listing out all your debts. It can seem overwhelming, but having a realistic view of your debt is essential to starting your journey.
After you have a clear picture, it’s time to create a budget. Tracking both your income and expenses is at the core of this.
List out all your living necessities. This includes items like rent, mortgage payments, utilities, etc. List out what you want to spend on groceries, gas, and other similar expenses for the month.
Have no idea how much you actually need for these things each month? If so, pull out a few months worth of bank statements. Take a look at each and every charge.
Group charges for food, gas, etc. together to see on average how much you spend each month within these categories. Use those values to start with.
Then list out minimums for all your debts. Add it all up and subtract from your income. Any leftover funds need to go directly towards debt. Give a meaning or purpose to each and every dollar.
If the numbers don’t look too great, brainstorm ways to decrease your expenses wherever possible and to make more money.
Check out these tips on asking for a raise when you feel you deserve one.
3. Pay Above the Minimum
People get in trouble by just paying the minimum. Why? Because of interest.
Credit cards typically have much higher interest rates than other debts like car loans. If you just pay the minimum on a balance, it can take you years to pay it off.
And over those years, you end up paying much more than what you initially charged to your card.
To fast track your debt payoff, pay above the minimum wherever possible. Doing so will ensure you hit more of the principal balance each month.
The one main debt that you actually might not want to pay ahead is a mortgage. Often there are prepayment penalties you should be mindful of.
4. Consider a Secondary Income
You will hit a point where you can’t lower your expenses any further. The next step to getting rid of debt is picking up a side hustle.
Diversifying your income is smart as it protects you somewhat if your main job goes away.
The opportunities are endless for making a little extra money. Many of which you can do right from your home. Check sites like Upwork, which provides freelancers with jobs ranging from data entry to report writing.
Like kids? Babysit on weekends. Want to be more active? Consider mowing neighborhood lawns or cleaning homes. The amazing thing is once you start, you and only you can decide how much you want to work.
Selling items you no longer need is a quick way to make money and declutter your home. Clothes, shoes, and furniture are all items in constant demand.
Just remember when you freelance, you are responsible for paying taxes on that money.
5. Avoid Pricey Habits to Get Rid of Debt
If you are in serious debt, especially credit card debt, it’s likely you have some expensive habits. These can derail even the best-intentioned debt-free journeys.
Take an honest look at your habitual spending. Do you “need” your venti frappuccino every day from Starbucks? Add up what that translates to in monthly spending. See the problem?
What about alcohol and tobacco? If you really are serious about paying down your debt, you will be willing to take at least a temporary break from drinking and/or smoking.
Other common expensive habits include things like boutique gym memberships, weekly nail appointments, or even ordering lunch out while at work.
6. Focus on High-Interest Balances First
Working with multiple debt accounts can be confusing. What should you focus on first?
There is a ton of advice out there, but one method to consider is honing in on the highest interest debts first. By paying these down quickly, you will save money.
If you still struggle working your way through multiple loans, consider enlisting the help of professional debt consolidation and relief services. You can easily find out more about these types of programs.
7. Throw Any Extra Money Towards Debt
One final tip for saying goodbye to debt is to always put any extra money towards your debts.
It may be tempting to put that $50 from grandma towards a new outfit, but having the discipline to put it towards debt will bring you more long-term satisfaction.
Always try to use at least a portion of your tax return to pay down accounts too.
You’re Seven Steps Closer to Financial Freedom
Debt conversations shouldn’t be shoved away due to embarrassment. The only way people, in general, will become financially free and get rid of debt is to be open and honest.
We hope these seven tips have motivated you to change your financial life.
Looking for some more information on side hustles? Check out this guide full of helpful information to get started!