It’s far easier to get into debt than it is to get out of it. It can be overwhelming to have a hefty credit card balance on top of a mortgage/rent and other bills from unexpected expenses.
Though the thought of paying down debt seems daunting, tackling it one step at a time can help you get your financial status back on track.
There are a number of ways to get a handle on debt and pay it down. Obviously, it’s easier said than done, so to help you get started, here are some strategies and tips for paying down and eliminating your debt.
3 Strategies to Eliminate Debt
There are three main strategies that you can use to eliminate debt and get control over your spending. Choosing the right one will depend on your financial situation and your purchasing habits.
1. The Snowball Method
The Snowball Method is one where you list all your debts and start paying each one off small to large. If you are making minimum payments, getting rid of the smallest loans first will leave you with more breathing room.
This method offers a sense of control and momentum. This method works well for people who are highly motivated and can work with a budget to pay their debt down.
2. The Avalanche Method
This method uses interest rates as a guiding post. Again, making a list of all the loans that you must pay helps. You start paying off loans that have the highest interest rates.
Once that is done, you can focus on paying the next loan with the highest interest rate. This strategy is a smart one for those who want the most cost-effective way to pay off what they owe.
3. Debt Consolidation
This is a method in which all your debt is consolidated into one loan and requires just one monthly payment. The biggest advantage of this method is that interest rates are lower. This method is ideal for those who have many cards and use one to pay off another.
Regardless of strategy, it requires discipline to stick to a budget and eliminate debt. It is important to take a hard and realistic look at your spending habits and to come up with an action plan.
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7 Tips on How You Can Get Rid of Debt
The first thing you should do is to make a list of debt you have – credit cards, mortgage, car loans, student loans, medical bills, etc. Once you know what you owe, you can take the following steps.
1. Making a budget
Since you already know your monthly salary, set up a spreadsheet with income and expense columns. Track your spending habits so that you can cut down on unnecessary costs. This is the first step to get out of debt.
2. Paying off high-interest loans/debt first
Check your credit card statements for interest rates charged. Make sure to pay off the balance with the highest interest rates first. Keep making minimum payments on the others until you can get to those.
Another option is to see if you can consolidate debt onto a new card so that you have a single payment to make. Balance transfers help you save a lot of the money you would pay in interest.
3. Stop using your credit cards
If you want to stop owing more money due to accruing interest on credit cards, take them out of your wallet and put them in a safe place. Cashback offers and rewards programs sound good, but you must stop spending. You should be judicious with credit card use till your finances are under control.
4. Using bonuses and raises for payment
When you receive a bonus or a raise at work, use this extra money to pay off debt. Don’t get tempted to go on vacation or spend it on something that only adds to your debt until your debt is tackled.
5. Deleting information from online shopping sites
If you have your information stored on online retail sites, delete it. Use your debit card linked to your bank account to make payments from your checking account. This will let you know what bill payments have been made and what your budget looks like.
6. Selling off unwanted items
If you have items at home that have not been used for a long time, you can sell them on eBay, craigslist or Facebook marketplace, or similar sites. It could be clothing or collectibles that someone else is looking for. Good pictures and a nice description will help with a quick sale.
7. Changing your spending habits
Looking at your bank statements over a six-month period will give you insights into how you got into debt. You may notice that you spent $50 on coffee during a week. That adds up to a lot over a month.
You could buy good coffee and make it at home. Consider taking lunch with you instead of eating out 3 or 4 times a week. Once you recognize unessential purchases, it will help to eliminate or cut down on them.
The above tips and strategies are just a few of the many ways in which you can take steps towards becoming debt free. All things considered, the best strategy to employ will depend on your finances and your spending habits.
This article is for general educational purposes only and is not written by a financial advisor.
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