Getting into debt is really not a challenge, but the challenging part is getting out of debt. If you want to get out of debt, you need to create some fundamental changes in your lifestyle, and you are sure to be debt-free in a few years, regardless of your low-income status. The most significant change is to stop borrowing any more money.
Many people get into debt because of living above their means, and they don’t realize how deep into debt they are until the creditors start knocking on their doors. Or when you have a sudden emergency and recognize that you have nowhere to borrow since your credit score is whack, and you owe a lot.
If you want to change your financial situation for the better, you have to put in the work. You must plan, commit, and have strong discipline to stick to your plans. And you will see that with time your debt will reduce, and eventually, you will be debt-free. Before we look at the various way to pay off your debt, let us first determine how much we owe.
How much do you owe?
Before you start paying your debt, you must first figure out how much you owe. This will help you create a solid debt repayment plan and avoid wasting money paying bills that can be cut off. When you realize how much you owe, you might feel guilty knowing that you spent the borrowed money recklessly.
But it already happened; the best thing is to face the debt head-on. It will help you identify your bad spending habits and put an end to them. Start now to secure your future financially. Once you know your overall debt, your next step is paying off the loans.
After you have audited your finances and figured out how much you owe, you must develop a strategic plan to clear the debts. Discussed below are 10 quick and easy ways to use to get out of debt.
Quick and Easy Ways to Get Out of Debt
- Pay More Than The Minimum
Ensure that you always make more than the minimum amount of payments on all your loans. This is because paying only the minimum will take you forever to finish paying off the loan because the amount you pay will be applied to the interest fees first.
The remaining amount is allotted to the principal, meaning that you will be making a small dent in what you owe. When you pay more, the extra amount is applied to the principal, saving you on interest and speeding up your repayment process.
Before you take out any loan or start making extra payments, confirm that your loan doesn’t incur any prepayment penalties. Make sure that you are tracking your loan repayment progress by charting down each payment. You can use free online tools, such as Tally or ReadyForZero.
- Pick Up A Side Job
When you have more money added to your income, you will be in a position to clear your debts faster. So, find out what other skills you can utilize to earn extra money. There are several ways to earn an extra income. These include:
Work as a virtual assistant: the good thing is you will work from the comfort of your home for several hours each day, and voila.! Your extra cash. The upside of being a virtual assistant is you’ll be just employing your office skills in an online space doing tasks such as email management, data entry, social media management.
So choose your poison among the many tasks available. You can use sites such as Fiverr or Upwork to find work.
Driver: You can pick up some driving tasks in the evening for a few hours with Uber or Lift.
Babysit: When you have debt, you don’t have to choose your work as long as the pay is good, and the result is not demeaning; you are good to go.
- Use the Extra Money
In the course of the month or the year, you will come across some extra cash in the form of a bonus, a raise, inheritance, gift voucher, or a big tax refund. Whatever money you get that was not in your budget, you should put it towards clearing your debts.
This money will help you pay off a considerable chunk of your debt. You can either apply the debt snowball method or debt avalanche; the choice is yours to make.
- Track Your Spending and Identify Expenses that You Can Cut Off
To succeed in getting out of debt, you have to cut off all your expensive habits and any other expense that you do not need. And the only way to do this is by tracking your spending for a few months, preferably three months. When you get the complete picture of your monthly expenditures, you will determine what to pay for and cut off.
Read Also: Track Expenses in 3 Easy Steps
There are several ways to track your spending. They include:
- Recording manually in a notebooks
- Using a spreadsheet
- Using a free online tracking app
- Connect your card to the tracking app
- Keep all your receipts
Irrespective of which method you choose to track your spending, ensure that you check at the end of each day to confirm that nothing has been left out.
After tracking, you can eliminate or reduce unnecessary expenses, including dining out, buying jewelry and expensive clothes, buying coffee outside, and subscriptions such as magazines. And the money saved from these expenses can be allocated to your debts.
- Create A Spending Plan
After tracking your spending, you must create a solid spending plan. This plan will also give you further ideas on where to reduce spending. But before creating a spending plan, talk with your family and ensure that they understand why some things will no longer be possible.
However, do not create a strict budget and deny yourself simple luxuries, such as dining out once a month or having a day off for yourself. You must know that self-care is crucial, and it is only by taking care of yourself that you will be able to work hard and pay off your debts.
Create a spending plan that will cater to your goal, which is to pay off your debts. In the process, we also save for an emergency fund because we do not want to get out of debt only to return when we need money urgently.
After paying off your debts, the next step is to save and invest for retirement.
- Debt Snowball Method
Suppose you have negotiated a higher income or have some extra cash coming in and want to make more than the minimum payment on your debts. Please consider using the debt snowball method to make your payments. The first step is to list all your debts from the smallest to the largest.
Then use the cash to pay off the smallest debt, and make the minimum payment on all other loans. This ensures that you are less than one loan.
The following month you can do the same, and within no time, all your small loans will be paid up, leaving you with the larger loans. And by this time, you’ll be having more cash to expend on the repayments.
- Pay Off High-Interest Debt First
This is also referred to as the debt avalanche method. List all your loans from the one with the highest interest to the one with the lowest. Then it would be best if you started making payments while ensuring that you are allocating more money to the highest-interest loan.
After you are done paying the first one, move on to the next, and the cycle continues till you are debt-free. When you pay off high-interest loans first, you will be able to clear your debts faster and save up on overall interest over time.
- Stop Using Your Credit Cards
Easier said than done because most Americans rely on credit cards apart from their salaries. But since you want to get out of debt, adding more credit card bills just pulls you further the debt rabbit hole. When you stop adding on your debt, you can improve your credit utilization, which factors when calculating your credit score.
Read Also: How to fix your bad credit score
Credit cards charge a higher interest rate, and this can significantly increase overall debt. So stop using them, and it is hard; you can try to cut them up and practice self-control not to apply for others.