Reducing debt requires changing spending habits, learning how to budget effectively, keeping track of expenses and prioritizing debts – an unenviable task indeed; yet millions have managed to conquer their debt successfully.
One way to quickly get out of debt is to stop using credit cards in favor of cash or a debit card. Another effective strategy for paying down debt balances faster would be investing extra income or using windfalls such as tax refunds or bonuses towards paying down existing balances.
1. Create a budget
An effective spending management strategy is key to eliminating debt and reaching savings or other money goals. A budget provides insight into your spending by tracking it, starting by classifying expenses into categories: fixed (like rent/mortgage payments and utility bills); variable (such as groceries and personal spending); and miscellaneous/nonessentials ( like entertainment/gym membership/shopping).
Once you understand how much you are spending, you can assess if there is room for change. For instance, if your variable expenses are excessively high, consider cutting back or shopping more wisely; or if debt is taking too much of your disposable income away, consider making paying down debt more quickly a top priority or saving regularly so you can focus on other goals like retirement savings or emergency fund growth instead.
2. Make a list of your debts
Do a thorough list of your debts and assess their total values to better prioritize payments and understand what’s due each month. Using a debt repayment calculator could also show you just how quickly additional payments could help clear away debt more quickly.
Rather than just making minimum monthly payments on your debt, a consolidation loan could reduce interest costs and make repayment more manageable.
Make an effort to reduce expenses to free up extra money every month, which may prove difficult but will keep your motivation for debt payoff high. Consider giving away part of your income each month or applying any windfalls such as tax refunds, work bonuses or gifts directly toward paying down your debts.
3. Create a debt repayment plan
An effective debt repayment plan can help keep you on the right path and reach your financial goals more easily, as well as help avoid fees or late charges that would otherwise apply.
Start by compiling an inventory of all of your debts and their interest rates. Next, determine how much monthly repayment can afford – this will give an indication as to which debts should take priority and whether consolidation makes sense for credit card or other forms of debts.
Once you have your budget in order, the next step should be devising a debt repayment plan. There are various strategies for prioritizing debt payments: such as targeting those with the highest interest rates first (debt snowball), or eliminating small balance debt first (debt avalanche).
Contact a certified credit counselor to explore all of your available strategies for clearing away debt. Join Financial Peace University for a proven step-by-step plan on how to tackle it head on while saving money at the same time.
4. Pay off your debts as soon as possible
As part of your debt repayment strategy, it’s crucial that you strive to pay as much each month. Doing this will reduce interest charges and help get rid of your debt faster.
Saving an emergency fund can also be extremely useful so you’re less likely to use credit cards or loans for unexpected expenses. Furthermore, closing any unneeded credit cards accounts can often be beneficial.
Diving out of debt may seem impossible, but with some discipline and persistence you can reach your goal of becoming debt-free. Start by creating a budget, listing all of your debts, and setting out a plan to pay them off as quickly as possible – then stick with it, celebrating each payment made! For additional guidance in becoming debt-free check out Financial Peace University which features nine lessons taught by Dave Ramsey to teach people how to take control of their finances and live debt-free forever!