[vc_row][vc_column][vc_column_text]Being in debt can be very stressful. It doesn’t matter what your circumstances are, if you signed for a loan, you have to pay it back even if you go through unexpected life-changing events such as losing your job, being involved in an accident, or even if your expenses go up due to having a child.
Many people will try to get out of debt, but things get so out of control and they feel so helpless, they give up.
That doesn’t have to be the case.
There are many people who are finding success by getting out of debt every single day, and not only that, but they are getting out of debt in a very short period of time.
If you are currently in debt but are ready to get on the path to financial freedom, it is vitally important that you have a plan for how you’re going to tackle that debt!
Here are 5 simple steps to help you eliminate your debt quickly
- Make a conscious decision to stop borrowing money
If you want to get out of debt fast, you have to stop using debt to fund your lifestyle. This means no more financing furniture, no more signing up for credit cards, no more test driving brand new cars that you don’t have the cash to pay for. Think about it.
How are you going to reduce your debt if you keep taking on new debt?
- Create an emergency fund of $1,000
Why is having an emergency fund so important?
If you don’t have any reserves and an emergency occurs, how are you going to pay for it? If you are like most people, your high interest credit cards become the funding source for those emergencies. If you are trying to get out of debt you need to stop borrowing money (See step #1 above). Your emergency fund will help to put a buffer between you and any unexpected expenses.[/vc_column_text][the_ad_group id=”36″][vc_empty_space][vc_column_text]
- Establish a realistic budget and stick to it
Developing a budget that keeps track of your income and expenses is vital to getting out of debt in the shortest time possible. It will help you to see where you are with regards to your finances so that you can move forward confidently towards your goal of being debt free.
Having a budget will show whether you have money left over after paying your living expenses, which is called a surplus, or if you are in the negative, which is called a deficit. The goal is to increase your surplus and use that money to pay down your debt. Below are two ways that you can do this.
- The first way is to increase your income. If you are paid by commission then you will have to make more sales. Putting it simply, you will need to make more sales, which will probably involve having to work more hours. If you are in a salary job and you are limited in the hours that you can work, then you might need to pick up a second job to boost your income
- Increasing your income, as we explained above is going to help a lot. However, if you really want to reduce your debt in the shortest time possible, you also need to reduce your expenses at the same time. Go over each item in your budget and ask yourself, ‘how can I make this number smaller?’ It may involve cancelling services that you rarely use such as a gym membership, Netflix subscription, etc. It might even involve reducing the amount of times that you eat out at restaurants each month. The amount that you reduce your expenses by will depend upon how committed you are to getting out of debt. The more committed you are, the easier it will be for you to give up some of the unnecessary things in life. You might not even need to sacrifice much if you can find these items or services for less.
- Organize your debts
There are two ways to organize your debts; by dollar amount or by interest rate.
If you choose dollar amount, you would list your debts from smallest to largest and, for example, start paying off the smallest. This can work great because it will help you build momentum. After you pay off your first loan, you will have the confidence and belief that you can get out of debt quickly if you stick to the plan.
The second method where you organize by interest rate is called laddering. This is our preferred method because it will save you the most money over time. The way it works is you list your debts, starting with the highest interest rate card first and end with the debt with the lowest interest rate. This method makes the most mathematical sense, because you will save the most money in interest over time.
Regardless of which process you choose, the key is to stick with it.
If you choose laddering, put as much money as you can each month toward the card with the highest interest rate, while still paying the minimums on the other cards. Once that debt is paid off, move on to the card with the second highest rate and so on. But this is very important: do not close the account once the balance is paid off. That will damage your credit. Just let the account sit at a balance of $0.
Just a side not: if you have one or just a few small debts that you can pay off immediately, go ahead and do that. That will give you some tangible progress to get started — and then start tackling the card with the highest interest rate.
- Throw any excess cash at your debt
It is possible that while you are getting out of debt, there will be times where some extra money will come your way that you had not expected. Make sure to take that money and put it towards your debt with the highest interest rate. Some good examples of unexpected cash would be a tax refund, selling a car, an inheritance, winning a bet, etc. The more cash you can put towards your debt, the faster it will disappear.
Remember: – Debt doesn’t have to be forever. Develop your financial game plan and start your journey toward being debt-free today.