Debt is usually unsettling, and once it piles up, it might feel like it could never be conquered, inhibiting one from achieving their long-term financial goals. However, one can build a sustainable debt management strategy to help them get out of debt.
1. Stop Borrowing Money - The first and most important step in getting out of debt is to stop borrowing money. Reshaping your attitude toward money and debt is the most fundamental change that has to happen. To avoid digging yourself into a bigger hole of debt, you have to understand the true cost of taking out new loans. Resolve to live on a cash basis while you make your changes.
2. Track Your Spending The next step in getting rid of debt quickly is to figure out where your money is going. It can be difficult to decide where to make budget cuts without having a full picture of what you pay for and how you spend. It’s best to track all of your monthly bills for at least a month as well as daily spending. Don’t forget to include your debt payment obligations while tracking.
3. Set up a Budget Once you’ve tracked your spending, it’s time to create a budget. By using your regular spending as a guide, this budget should account for all of your needs. The tracking will also show you places where you’re spending too much and where you can easily make cuts without deeply affecting your life. A vital part of the budgeting process is to put it in writing. It’s also important to include financial goals in your budget. The goal to get out of debt fast is probably your biggest priority, but don’t forget to build an emergency savings fund as well. After your debts are paid off, you can come up with more goals to save. Just remember to add them to your budget in writing to hold yourself accountable.
4. Create a Plan to Pay Off Debt One of the quickest ways to get rid of debt fast is by using the “debt snowball” approach. This strategy calls for you to make minimum payments from your monthly debt payment fund to all but one of your debts. This specific debt will get more than the monthly required amount and will be paid off quicker as a result. When that debt is paid off, you choose another debt and reallocate all of the extra funds toward it. Keep repeating this process until all debts are repaid in full. Over time, the extra funds snowball, while the amount of money you dedicate to debt repayment stays the same. This method accelerates your repayment faster as debts get paid off. When trying to decide which debts to pay off first, you can sometimes focus on paying the debt with the highest interest rate first. However, which debt you choose to focus on might depend on your situation.
5. Pay More Than the Minimum Payment If you’re trying to figure out how to get out of debt fast, you should try to put as much as you can toward debts every month. When you create your initial budget, set a minimum amount that you are putting toward debts each month. A good chunk of your total income should be allocated here, preferably 20% or more. Of course, any opportunity to add more will help get you to your goals faster. No matter what your situation, it’s important to pay more than the minimum required. Make this a habit that is set in stone. Even if you have a terrible month with emergency expenses, pay more than the minimum payment, if possible.
6. Find Alternative Income Sources If you can, find a way of making an alternative income that you can commit towards the debt repayment, this could be something as simple as selling off some of the household/business items that you no longer need, getting a part-time job or freelance work. With this income, it is essential to have the discipline not to divert it to any other uses aside from paying off debt.
Conclusion Getting out of debt takes time, and while at times it might feel hopeless and draining, it is important to maintain a positive mindset. All it takes is consistency and patience, and you will be well on your way to being debt free. It’s also important to maintain the highest level of financial discipline, to avoid getting back into bad debt