All of us have experienced moments of financial instability. For some, it was a short period that they quickly overcame, while for others it completely turned their lives upside down. Discipline is one of the characteristics you must adopt if you want to eliminate debt. In this article, we’ll discuss the various tried and tested solutions you can implement to achieve financial freedom. It might take a few months or even years to see results, but I promise it will be totally worth it!
- How to decisively eliminate debt
- Final thoughts on how to eliminate debt
How to decisively eliminate debt
The following tips will allow you to enjoy the joys of a debt-free, stress-free life:
1. Have a monthly budget
A budget is a financial forecast of your monthly income and expenses. You’ll have tighter control of your money by listing the amount you earn against what you plan to spend it on. A budget is primarily meant to curtail impulse buying, so it’ll be useless if you don’t follow it. Budgets are so important that even corporations and countries have them!
Once you’ve listed your expenses, you’ll be able to figure out what you absolutely need and what you can do without. Do you have fast internet but still pay for cable channels that you barely watch? Can you cut down on the number of times you dine out every month? Is it possible to move to a slightly more affordable house than the one you’re currently in?
If the answer to such questions is yes, stop spending on these unnecessary expenses and use the money you save to eliminate debt. There are various budgeting apps to help with this process.
2. Use the debt snowball method
This debt payoff method works especially well to boost your morale. You’ll first need to list all of your debts, from the small “insignificant” ones to the one that gives you the biggest headache. Start by paying special attention to the lowest amount on the list. Dedicate more funds than usual (probably from what you saved by having a budget in the tip above) to paying off this tiny debt, while paying the minimum on your other debts.
Once it’s paid off, cross it off the list then transfer the amount you used to dedicate on it to the next smallest debt. As you pay off your smaller debts faster, you accrue more funds to use on the larger ones until you’re completely debt-free.
3. Try the debt avalanche method
Just like the debt snowball method, start by listing all of your debts. The difference, in this case, is that you’ll dedicate more funds towards the one with the highest interest rate. Once you pay it off, transfer those funds to the debt with the next highest interest rate, until all of them have been paid off.
4. Start a side hustle
The gig economy keeps growing, which presents a golden opportunity to eliminate debt faster. You must have a talent or skill that can earn you extra income. It could be writing, web design, creating art & craft, transcription, managing social media accounts, or giving motivational speeches. Several platforms offer this opportunity, such as Upwork, Fiverr, and 99Designs. You could also earn from a YouTube channel by keeping your followers updated on a project you’re passionate about.
Other side gig ideas include affiliate marketing, dropshipping, flipping websites, blogging, and reselling on eBay. You could also drive an Uber or Lyft, rent out a spare room on Airbnb, or tutor over Skype. Your side hustle doesn’t have to be online based. You can still earn from tried and tested gigs. They include babysitting, cleaning carpets, walking dogs, interior decor, and tour guiding. I started writing to earn extra income to pay off debts, and I was able to achieve that goal in record time. I hope that motivates you!
5. Sell items you no longer need
I know how hard it can be to let go of items you once held dear. You must focus on your core objective: to eliminate debt. If you have stuff stashed in the attic, basement, or store that you haven’t used for years, then you should sell it. Keep the few that have real sentimental value and offload the rest. A garage sale is a cool way of earning extra income to pay off debt. You can also advertise online, including on social media sites such as Facebook.
You’re bound to get someone who’s in dire need of something that’s no longer useful to you. In so doing, you’ll kill two birds with one stone. Other than decluttering your house, you’ll also earn enough money to reduce or pay off your entire debt.
6. Don’t create new debt
This suggestion might sound like common sense, but sometimes it’s hard to break the chain of debt accrual. Even as you struggle to reduce expenses and increase your income, you might still have a hard time saying no to new debt. Stop carrying your credit cards everywhere you go, to avoid the temptation of impulse buying. Avoid signing up for new credit cards just because they’re on offer. If possible, cancel the ones you don’t need.
On a related note, try to re-negotiate your current debt’s interest rates with your creditors. If they refuse, consider transferring your credit to a lender with lower rates. You can also eliminate debt faster by taking a consolidated loan to pay off all of your other liabilities. That way, you’ll focus on repaying that one loan. Try your absolute best to pay your installments on time to avoid late fees and other fines. If possible, always pay a higher amount than the required minimum to be on the safe side.
7. You don’t have to buy brand new items
Although there’s a likelihood of buying used items with some defects, you can also land on sweet deals that’ll save you money. Why buy a new car for $30,000 when you can buy a three to five-year-old one for $20,000? Most reliable used car dealers have a concise history of the vehicle, so you’ll know what you’re dealing with. Some older cars cost $5,000 to $10,000. So long as they serve their purpose, you handle them with care and take them for scheduled service; the lower payments will help you eliminate debt.
The same applies to other items such as electronics. You don’t have to buy a smartphone every time a new model gets released. If your current one still works fine, there’s no need for unnecessary purchases. Just as I advised you to sell your items in point 5 above, you can also score sweet deals in garage sales, auctions, and thrift stores. Most online sellers also provide coupons as well as having sales to dispose of excess inventory.
8. Save for rainy days
I know. It sounds a little ridiculous to save while trying to eliminate debt, but it’s totally possible. Saving is proof of financial discipline. Other than reducing debt, most of the tips on this article also help you cultivate a savings culture. Once you’ve cleared your debts, don’t fall into the temptation of taking new debt. Instead, set aside the amount you used to dedicate to these monthly obligations towards unforeseen situations such as leaking roofs, car repairs, medical emergencies, and job loss.
A monetary cushion helps you tackle such circumstances as you plan your next step. It’s easier to save if you’re employed because you can authorize automatic transfers from your checking to the savings account. You can also contribute to retirement plans such as 401(k), IRA plans, pensions, and life insurance plans. Your employer will match your contributions to some plans, thereby giving you extra motivation to save. You might also receive tax benefits, as well as longterm investments such as real estate and stock.
9. Seek help from certified credit counsellors
Credit counseling agencies are well versed in all possible debt traps. More importantly, they can study your situation and come up with a customized debt management plan to help you get rid of it faster. Before signing up with such agencies, ensure they have reputable online reviews. You should also make sure they’re listed with consumer protection agencies such as the Better Business Bureau and National Foundation for Credit Counseling.
If you don’t like this option, there are several free and premium online resources you can turn to. They include articles such as this one, financial management ebooks and audiobooks on Amazon, and YouTube tutorials. Other helpful websites include Debt.org, americasaves.org, and moneymanagement.org.
Final thoughts on how to eliminate debt
As mentioned earlier, discipline and consistency will be key weapons in your fight to eliminate debt. As with other bad habits, you’ll need to stay focused even after clearing your debts to avoid relapses. The good news is that a debt-free lifestyle gives you happiness and peace of mind. Once you taste sweet financial freedom, you’ll become an expert on how to identify and avoid debt traps!